Question

Suppose that you are considering what to do with an upcoming weekend. Here are your options, from least to most preferred: (1) study for upcoming midterms; (2) fly to Colorado for a quick ski trip; (3) go into seclusion in your dorm room and try to improve your score on a computer game. What is the opportunity cost of a decision to play the computer game all weekend?

Short answer

The opportunity cost of choosing to play the computer game all weekend is the option to fly to Colorado for a ski trip. This is the next best alternative that was given up.

Step-by-step solution

List the options in order of preference

First, take all the options and list them from least to most preferred. Here are the options: (1) study for midterms, (2) ski trip to Colorado, and (3) play a computer game.

Identify the chosen activity

Next, identify the chosen activity. In this case, the option that was chosen is to play a computer game all weekend.

Identify the next best alternative activity forgone

Now, identify the next best alternative that is being forgone by choosing the main activity. After playing the computer game, the next preferable option is flying to Colorado for a ski trip.

Key concepts

Decision Making

Making a decision involves choosing between different options based on a set of criteria or preferences. In the context of the exercise, "decision making" is about determining which activity to engage in over the weekend - studying, skiing, or playing a computer game. Each choice carries its own set of benefits and drawbacks, and making a good decision requires weighing these against each other.

The essential components of decision making are:

• Identification of alternatives: List out all possible options that you could choose from.
• Evaluation of alternatives: Consider the pros and cons of each option. What are the potential benefits and what might you have to give up?
• Final selection: After evaluating, choose the option that best aligns with your goals and preferences.

In this scenario, the decision-making process leads to the choice of spending the weekend playing a computer game. Understanding decision making is crucial as it directly affects opportunity cost and satisfaction.

Preference Ranking

Preference ranking helps in organizing choices from least to most preferable based on personal criteria or utility. In this exercise, you rank the activities – studying, skiing, and playing games – to determine which you prefer the most.

Here are steps for preference ranking:

• List preferences: Write down all possible activities or choices you are considering, as seen with the weekend options: studying, skiing, and gaming.
• Rank the preferences: Order these activities based on your desire to pursue them, considering factors like enjoyment, benefits, cost, and effort.
• Review rankings: Ensure your rankings align with your long-term goals or values.

In the step-by-step solution, the exercise demonstrates how preference ranking assists in decision making by highlighting that gaming is preferred over skiing, which is preferred over studying. This ranking guides the final decision.

Alternative Choices

Alternative choices refer to the different options available when making a decision. In any given situation, such as planning a weekend, numerous paths can be considered, each representing an alternative choice. Understanding all the alternatives helps in identifying the opportunity cost, which is the value of the next best alternative forgone.

In the original exercise, the options are to study, ski, or play games. If you choose to play computer games, your alternatives include skiing as the next best choice. The importance of recognizing these alternatives encompasses several aspects:

• Comprehensive decision making: Evaluating all possible choices ensures no options are overlooked.
• Calculation of opportunity costs: Knowing what you are forgoing by choosing one alternative over another helps understand sacrifices made.
• Optimizing satisfaction: Aligning chosen activities with your top preferences increases your satisfaction and utility.

Thus, understanding alternative choices is pivotal in optimizing both your decisions and their outcomes, with the opportunity cost being a fundamental aspect of economics and personal decision making.