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ERIC Number: EJ1091628
Record Type: Journal
Publication Date: 2016
Pages: 3
Abstractor: ERIC
ISSN: ISSN-0022-0485
Opportunity Cost and the Intelligence of Economists: A Comment
Arce, Daniel G.
Journal of Economic Education, v47 n1 p23-25 2016
In "Opportunity Cost: A Reexamination," Professor Parkin contrasts forgone physical quantities with forgone values as measures of the opportunity cost of basic economic decisions. The impetus for his study stems from an experiment conducted by Ferraro and Taylor (2005), in which professional economists could not reach a consensus over four alternatives presented as the opportunity cost of attending an Eric Clapton concert. As F. Scott Fitzgerald (1936) put it in "The Crack-Up," "the test of a first-rate intelligence is the ability to hold two opposite and opposing ideas in the mind at the same time, and still retain the ability to function." In this way, Potter and Sanders (2012) contended that every answer option provided by Ferraro and Taylor (2005) is economically defensible, depending upon opportunity cost accounting methodologies. According to the author, what matters is whether the decision makers involved are making apples-to-apples comparisons in terms of the data available used to measure what is being chosen and what is being forgone. Potter and Sanders called this "operational standardization." Professor Parkin offers several examples in which the physical quantity of what is being chosen and what is being forgone is a better operational standard. In this comment, the author shows how values are the natural operational standard for measuring opportunity costs when it comes to shadow prices and deriving economic profit. Hence, both values and quantities have their place as measures of opportunity cost. The author also argues that the real issue is that textbooks should have an expanded set of examples of opportunity cost--many more than they currently have. [For "Opportunity Cost: A Reexamination," see EJ1091610.]
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Publication Type: Journal Articles; Opinion Papers; Reports - Descriptive
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A
Grant or Contract Numbers: N/A