The Concept of Opportunity Cost: Is it Simple Fundamental or Necessary?

Abstract

Surveys by Ferraro and Taylor (2005) point to abysmal understandings of the concept of opportunity cost by US faculty, graduates and undergraduates. Given that opportunity cost is widely believed to be fundamental to economic thinking, this empirical evidence raises important teaching and conceptual issues. One implication is that the concept is poorly taught in textbooks and classrooms from which it follows that pedagogical remedies are needed. Three further implications, however, strongly influence the extent and nature of such remedies. These implications are that opportunity cost is not a simple concept but a difficult one, that it is not a fundamental economic concept but either a subordinate or optional one, and that graduates do not actually require a good understanding of the concept for successful careers as economists. This paper presents argument to support these propositions, and discusses their bearing on approaches to the teaching of opportunity cost.