<p>Every dollar you spend has an opportunity cost equal to the dollar spent on something else. By spending 100 dollars on good or service A, you give up on 100 dollars worth of good or service B. Therefore, an explicit cost of 100 dollars is an opportunity cost of 100 dollars worth of other goods and services as well.</p>

<p>By going to college you forego a salary but also goods and services worth exactly your explicit costs.</p>

CC BY-SA 4.0
2019-09-26T00:10:33.667Z
2019-09-26T00:10:33.667Z
LeoArtaza
<p>Mankiw's definition and explanation of opportunity cost <a href="https://www.csun.edu/sites/default/files/micro1.pdf" rel="nofollow noreferrer">here</a> is confusing. Since when have explicit costs become part of opportunity cost?
Here is what the guide says:</p>

<blockquote>
  <p>The concept of opportunity cost is one of the most important ideas in
  economics. Consider the question, “How much does it cost to go to
  college for a year?” We couldadd up the direct costs like tuition,
  books, school supplies, etc. These are examples of explicit costs,
  i.e., costs that require a money payment. However, these costs are
  small compared to the value of the time it takes to attend class, do
  homework, etc. The amount that the student could have earned if she had
  worked rather than attended school is theimplicit cost of attending
  college. Implicit costs are costs that do not require a money payment.
  The opportunity cost includes both explicit and implicit costs.</p>
</blockquote>

<p>Since explicit costs are out of pocket costs, they are not considered as opportunity cost. Am I missing anything here?</p>

<p>EDIT:
Here is another explanation from Keat et al. Managerial Economics.</p>

<blockquote>
  <p><strong>Opportunity Cost Versus Out-of-Pocket</strong> 
  <strong>Cost</strong> Previous discussions
  pointed out that opportunity cost is one of the most important and
  useful concepts in economic analysis because it highlights the
  consequences of making choices under conditions of scarcity. We can
  now use this term in a more specific way to help explain the concept
  of relevant cost. Opportunity cost, as you recall, is the amount or
  subjective value that is forgone in choosing one activity over the
  next best alternative. This type of cost can be contrasted with
  “out-of-pocket cost.” On occasion, economists refer to opportunity
  cost as indirect cost or implicit cost, and refer to out-of-pocket
  cost as direct cost or explicit cost.</p>
</blockquote>

CC BY-SA 4.0
2019-09-25T22:52:01.867Z
"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less." *Through the Looking-Glass, and What Alice Found There*
Henry
CC BY-SA 4.0
2019-09-25T23:25:39.007Z
@Henry, can you please post it as an aswer? Also, I updated the post.
london
<microeconomics><opportunity-cost>
What is an opportunity cost?
london
# What is an opportunity cost?

(Asked by: username_0 on 2019-09-25)

Mankiw's definition and explanation of opportunity cost [here](https://www.csun.edu/sites/default/files/micro1.pdf) is confusing. Since when have explicit costs become part of opportunity cost?
Here is what the guide says:

> The concept of opportunity cost is one of the most important ideas in
> economics. Consider the question, “How much does it cost to go to
> college for a year?” We couldadd up the direct costs like tuition,
> books, school supplies, etc. These are examples of explicit costs,
> i.e., costs that require a money payment. However, these costs are
> small compared to the value of the time it takes to attend class, do
> homework, etc. The amount that the student could have earned if she had
> worked rather than attended school is theimplicit cost of attending
> college. Implicit costs are costs that do not require a money payment.
> The opportunity cost includes both explicit and implicit costs.

Since explicit costs are out of pocket costs, they are not considered as opportunity cost. Am I missing anything here?

EDIT:
Here is another explanation from Keat et al. Managerial Economics.

> **Opportunity Cost Versus Out-of-Pocket**
> **Cost** Previous discussions
> pointed out that opportunity cost is one of the most important and
> useful concepts in economic analysis because it highlights the
> consequences of making choices under conditions of scarcity. We can
> now use this term in a more specific way to help explain the concept
> of relevant cost. Opportunity cost, as you recall, is the amount or
> subjective value that is forgone in choosing one activity over the
> next best alternative. This type of cost can be contrasted with
> “out-of-pocket cost.” On occasion, economists refer to opportunity
> cost as indirect cost or implicit cost, and refer to out-of-pocket
> cost as direct cost or explicit cost.

**Tags:** microeconomics, opportunity-cost

> **Comments:**
> **username_1**: "When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less." *Through the Looking-Glass, and What Alice Found There*  
> **username_0**: @username_1, can you please post it as an aswer? Also, I updated the post.  

---

## 1 answers

### Answer by username_2 on 2019-09-26. Score: 0

Every dollar you spend has an opportunity cost equal to the dollar spent on something else. By spending 100 dollars on good or service A, you give up on 100 dollars worth of good or service B. Therefore, an explicit cost of 100 dollars is an opportunity cost of 100 dollars worth of other goods and services as well.

By going to college you forego a salary but also goods and services worth exactly your explicit costs.


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