The Rhetoric of Opportunity Cost

Abstract

A well-known survey of economists revealed that many of them could not correctly answer a basic question on the concept of opportunity cost. In this paper, I connect the concept of opportunity cost to the familiar apparatus of marginal analysis—the equality of prices and marginal rates of substitution at the margin. When opportunity cost is understood this way, it forces one to be clear about units and about the difference between discrete and continuous variables. A more general understanding of opportunity cost can link basic principles-level examples with more advanced technical examples and improve the stories that make up the rhetoric of basic economics instruction.