Plain Sense Economics

Tyler Cowan, who writes in the Marginal Revolution blog, contributed this piece in the November 18, 2008 of The Washington Post. He both defines and applies opportunity cost. Here’s an excerpt -

But all these figures don’t quite get at Iraq’s real cost. Indeed, we usually don’t even frame the question the right way. We’d do better to recognize what we’ve lost, rather than focusing only on what we’ve paid.

We often think of cost simply in terms of dollars spent, but the real cost of a choice — what economists call its “opportunity cost” — consists of the forgone alternatives, of the things we could have had instead. For instance, the cost of seeing a movie is not just the dollars you plunked down for the ticket, but also the subtler cost of missing a dinner at home or a cocktail party at work. This idea sounds simple, but if applied consistently, it requires us to rethink and, yes, raise the costs of the Iraq war.