Question

Respond to this post with an encouraging and supporting note, along with possibly some additional information :

For this week's discussion I went with scenario 6. I'm an air traffic controller in the FAA, I'll just use my occupations median salary of $120,000 as a base line. Using a take home amount after taxes, retirement plan, and insurance results in an hourly amount of ~$40.

((120,000 * 0.7) / 52 ) / 40.

I chose to create my own example for the sake of interest. I recently hired a pest control agency for an initial visit. I searched the internet for roughly 30 minutes, filled out the form and scheduled an assessment (over the phone) - 15 minutes. I was given a window of 12pm-2pm the following day. Since I had already things to do before at my house, the opportunity costs only really include the window between 12-2pm that I had to leave vacant - 2 hours. Of course the appraiser showed and left around 2pm so no extra cost there. I elected to go with a $30/month service for I don't want the stress of remembering to do everything and the research of it. So 2 hours 45 minutes were used with a 30 initial fee. 2.75*40 + 30 = $140.

If I chose to do everything myself. I would have most likely spent more time researching what all insects and pests are in this area and what to use on them. Buy the spray and needed supplies and routinely inspect. I estimate I would spend 4 hours researching everything and finding the best/most effective products and then 30 minute round-trip to the store, and then an hour applying for a total of 5.5 hours costing me $220 in opportunity costs.

I went with letting a professional do it for it was easier on my part and ended up costing me less time, and my time is valuable so really saving me money.

From these examples I learned that everything has a value. Though waiting in line is usually just agonizing, now I can wait in line already frustrated, but now I'll also see dollar signs. Being able to break-down decisions based on opportunity costs is going to be very useful for it gives me more information and data to make better decisions

Answer 1

A very detailed take on opportunity cost. And a very unique example too. I would like to add another very important concept that this example is covering- of comparative advantage

Technically, almost all of us can do anything. It will just take different time for different time. For example, I can decide to make a video game today. But since I dont know any coding, 3D modeling and what not, it will take me years to produce a very small game. The same game could be made by an expert in maybe 2 months. Just like that, you couldve done the pest control yourself. But it wouldve taken you far more time and probably more money too to do that. This is called comparative advantage. People are experts in certain fields and can do the same activity at a lower cost (in terms of money, time, effort etc) and its always better, fom an economic efficiency perspective, that each peson does a job he/she has comparative advantage in. Just like its better for you to do ATC job and for the pest control guy to do pest control. If the roles were reversed, both would take far more resources to do the same jobs!