Question

Suppose that you are considering what to do on 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? (Your answer will not be in dollars.)

Short answer

The opportunity cost of deciding to play computer games all weekend would be missing out on a quick ski trip to Colorado.

Step-by-step solution

Understand the premise

The question presents three activities in order of preference, 1) studying for the midterms, 2) going on a quick ski trip to Colorado, and 3) playing a computer game. Understand that if the decision is to play the computer game, the opportunity cost would be the next best choice.

Identify the opportunity cost

If the decision made is to play computer games, the next best choice from the list, i.e., the opportunity cost, would be what is being given up. From the list, if playing computer games is chosen, the next best option would be flying to Colorado for a quick ski trip. Therefore, the opportunity cost of choosing to play the computer game all weekend would be the enjoyment and experiences that could have been gained from the skiing trip.

Key concepts

Economic Decision Making

When faced with various options for spending time or money, individuals and businesses engage in economic decision making. This process involves evaluating the different choices and selecting the one that best aligns with desired outcomes or goals. In the exercise, the economic decision to be made was choosing between studying for midterms, taking a ski trip, or playing computer games. It illustrated a real-life situation where one has to prioritize one option over the others and consequently ponder the trade-offs involved.

Steps in Economic Decision Making

• Identify the alternatives - Here, the options include studying, skiing, or gaming.
• Consider the benefits and costs - Both tangible and intangible factors like enjoyment, stress relief, or future academic success must be weighed.
• Assess the opportunity cost - Determine what will be forgone by making a particular choice.
• Make a decision - Select the option that offers the highest subjective value.

Through understanding this approach, students can appreciate the meticulous process involved in making smart choices and also acknowledge that every decision comes with an inherent trade-off.

Trade-Offs in Economics

In economics, a trade-off is an exchange where one gain is made at the expense of another. For instance, if you choose to spend more resources (time or money) on one thing, you'll have less to spend on others. The exercise presented a dilemma between spending time on leisure activities or preparing for exams, illustrating a classic trade-off between immediate pleasure and potential future benefits, such as academic achievement.

Understanding Trade-Offs

Grasping the concept of trade-offs is crucial, as it emphasizes that nearly every choice incurs a cost, which is what we forgo. In the case of playing video games for the entire weekend, the trade-off is missing out on the second-best alternative which, according to the preference list, is the ski trip to Colorado. Analyzing trade-offs helps individuals anticipate the consequences of their decisions and fosters better planning and prioritization.

Cost-Benefit Analysis

Cost-benefit analysis is a systematic approach to estimating the strengths and weaknesses of alternatives. It is used to determine options that provide the best approach to achieve benefits while preserving savings. For example, in the decision-making exercise, a cost-benefit analysis would involve evaluating the relative satisfaction from skiing or playing computer games versus the opportunity costs associated with each activity.

Implementing Cost-Benefit Analysis

One key to proficiently implementing a cost-benefit analysis is to quantify benefits and costs as much as possible. While in some scenarios, like the one mentioned in the exercise, the costs are not in monetary terms, they can still be conceptualized in terms of value lost or gained, such as happiness, knowledge, or health. When making economic decisions, a clearly laid-out cost-benefit analysis can guide individuals toward choices that maximize their well-being and success.