Submit your own Neatorama post and vote for others' posts to earn NeatoPoints that you can redeem for T-shirts, hoodies and more over at the NeatoShop!

The Opportunity Cost of a Free Concert Ticket

According to Wikipedia, Opportunity Cost is "the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen)." Metafilter discusses an opportunity cost question that stumps far too many economics students.
Answer this: "You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan (because he's so cool!). Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? A. $0 B. $10 C. $40 D. $50"

See if you can determine the correct answer before you look it up. There are links to more information in the form of pdfs, and a discussion in the comments. The problem seems to raise more questions that it answers. Link

I'm with John Farrier.
(And it's an effort to imagine getting a different answer, unless you assume that "opportunity cost" isn't well-understood.)
Abusive comment hidden. (Show it anyway.)
$10 may be the correct answer from an economist's point of view, but an accountant will have a different answer: $0.

Accountants compute value as the lower of cost or market. Since the cost of the Dylan tickets is $40, that is the value regardless of the satisfaction gained from attending the concert. Since the satisfaction and value are both $40 dollars, the amount gained from attending Dylan is zero and there are no opportunity costs.
Abusive comment hidden. (Show it anyway.)
We are all so stupid! Or so these pedantic economists would want us believe.

In the mean time economies the world around are tanking and we go from one financial crisis to the next.

Infinite growth with limited resources. Yeah, VERY smart.
Abusive comment hidden. (Show it anyway.)
The author of the paper asked a confusing question (incomplete data) with distractors (biases about Clapton and Dylan could come in - I'd pay to *escape* a Dylan concert), and then used that setup to hand-wring about his hobby horse.
Abusive comment hidden. (Show it anyway.)
There's some confusion people are having because they're attempting to answer a different question. When asking what the opportunity cost is, the value of the activity you are doing is not relevant. That is only needed when attempting to determine the optimal activity. The opportunity cost is simply the net value of the alternative (total value minus costs).

When attempting to determine your optimal course of action, you then compare the value of the free ticket (the amount you'd normally spend on the Clapton ticket - 0 cost) to the opportunity cost of the Dylan concert. But they're different questions, although obviously is a natural follow up to the other.
Abusive comment hidden. (Show it anyway.)
Sorry, my previous comments were poorly worded, please delete.

The opportunity cost of not going to Dylan is 10 (missed utility of 50 [=maximum price you're willing to pay] minus corresponding cost of 40).

Thus, your utility from going to Clapton must be greater than 10 to make you better off in total.
Abusive comment hidden. (Show it anyway.)
The answer would be 40 as the oppurtunity to see Dylan would cost you 40 dollars vs saving the 40 and going to see Clapton for free. Regardless of the the fact that you are willing to pay 50 for Dylan (which implies the liking of Dylan) the tickets will still run 40 dollars. With that said you also have to weight which will be alive longer. Assuming you are only going by the age of the performer. Clapton born in 1945 has a greater chance of living longer than Dylan, 1941,Ceteris Paribus. As such the oppurtunity cost of seeing Clapton over Dylan would be that you may never see Dylan due to his death
Abusive comment hidden. (Show it anyway.)
We talk about this all the time where I work. We have limited time and resources. Should we do A or B, or wait for some better opportunity?

I agree that the question is incomplete. If we ask the question a bit differently: You have a roadside fruit stand. Should you spend an hour picking blueberries in the woods behind your house, or buy strawberries from a neighbor for $40? Walking to the neighbor's house takes an hour and you can sell the strawberries for $50. You can't answer the question without knowing how much the blueberries are worth.
Abusive comment hidden. (Show it anyway.)
I gave up paying for concerts when tickets for The Eagles went up to $8 -back in the mid 70s. After that I got lots of free tickets as a radio DJ, but as I got older, all concerts seem like more trouble than they are worth. Now, my kids are amazed that I got to see so many rock concerts that they cannot afford.
Abusive comment hidden. (Show it anyway.)
I agree that it's an important factor to know what the Clapton concert is worth to the recipient. That contingency will be used to determine choices made.

Having been a student of economics, I was fascinated to learn the theory behind making choices. Every choice we make uses economic logic. Although people don't measure all choices in terms of currency, people will make their choices based on value. If the decision making process is stretched out to absurdity, every choice takes into account all possible outcomes as well as their costs and benefits. The human mind can generally do this very quickly and that's really neat. Going to see Clapton might be worth it until considering ancillary factors, like providing it to someone else and getting the "warm fuzzy" feeling like you mentioned.

This made for good food for thought on a Monday morning. Thanks for that.
Abusive comment hidden. (Show it anyway.)
Aha, so "next-best-alternative" means that you like Clapton better than Dylan -but is that only slightly better, a lot better, or is it only "better" because you have a free ticket? I have to admit, I didn't read ALL the links all the way through.
Abusive comment hidden. (Show it anyway.)
The question DOES state that Clapton is your next-best alternative activity, which indicates that there is nothing you would rather do than see Clapton. So, using that part of the question, you wouldn't want to give away your ticket. And, because it has no resale value, it is worthless any other way if you don't go. So, the question appears to be valid to me.

Opportunity cost is not to be confused with value. In my brief reading of the paper, it seems like that is where people got tripped up. Still, it is disturbing to me that so many educated economists got the question wrong.
Abusive comment hidden. (Show it anyway.)
My problem with this question is that it didn't mention whether "you" liked Eric Clapton or not, therefore many Mefites declared that the Clapton concert was moot, and you may as well have supposed the first activity would be to stay home and watch TV or something.

Also, my experience tells me that concert tickets with no resale value are still valuable, because there is value in giving it away. People like that sort of thing.
Abusive comment hidden. (Show it anyway.)
Login to comment.
Click here to access all of this post's 19 comments

Email This Post to a Friend
"The Opportunity Cost of a Free Concert Ticket"

Separate multiple emails with a comma. Limit 5.


Success! Your email has been sent!

close window

This website uses cookies.

This website uses cookies to improve user experience. By using this website you consent to all cookies in accordance with our Privacy Policy.

I agree
Learn More