WEBVTT FILE 1 00:00:03.220 --> 00:00:05.520 This video introduces one of the most important 2 00:00:05.560 --> 00:00:07.846 and useful concepts in economics: 3 00:00:07.886 --> 00:00:10.837 opportunity cost. 4 00:00:10.877 --> 00:00:14.538 Let's begin at a college football stadium just outside Boston. 5 00:00:14.578 --> 00:00:17.918 Partly, I was here in my capacity as sports nut. 6 00:00:17.958 --> 00:00:19.717 [cheering] 7 00:00:19.757 --> 00:00:20.848 One of the many fans 8 00:00:20.888 --> 00:00:24.002 following the fortunes of the Boston College Eagles 9 00:00:24.042 --> 00:00:25.872 but the armchair economist in me 10 00:00:25.912 --> 00:00:28.603 was looking for more than an easy win. 11 00:00:28.643 --> 00:00:30.386 Seeing that so many people had chosen 12 00:00:30.426 --> 00:00:33.614 to spend their day cheering their favorite team to victory 13 00:00:33.654 --> 00:00:37.231 I wondered first about the economic benefit these fans placed 14 00:00:37.271 --> 00:00:38.481 on attending the game. 15 00:00:38.521 --> 00:00:40.006 -Let's say I offered each of you... 16 00:00:40.046 --> 00:00:42.006 I said I'm going to buy your ticket but you can't go to the game... 17 00:00:42.046 --> 00:00:44.006 -How much would you offer? 18 00:00:44.046 --> 00:00:46.290 -$10. 19 00:00:46.330 --> 00:00:47.340 -Not worth it. 20 00:00:47.380 --> 00:00:48.290 -Would anybody take $15? 21 00:00:48.330 --> 00:00:49.884 -No. 22 00:00:49.924 --> 00:00:50.790 -$75? 23 00:00:50.830 --> 00:00:51.493 -No. 24 00:00:51.533 --> 00:00:53.291 -$80, if I give you $80? 25 00:00:53.331 --> 00:00:56.624 -I'd take $80. -I set my limit at $100. 26 00:00:56.664 --> 00:00:57.541 [laughing] 27 00:00:57.581 --> 00:01:00.129 -Well, let's say I offered you $100 for your ticket. 28 00:01:00.169 --> 00:01:02.169 -I don't think so Charlie. 29 00:01:02.209 --> 00:01:04.762 -I don't see that. I'm sorry, I can't do it. 30 00:01:04.802 --> 00:01:05.783 -$500? 31 00:01:05.823 --> 00:01:06.924 -No. 32 00:01:06.964 --> 00:01:08.090 -$600? 33 00:01:08.130 --> 00:01:09.143 -No. 34 00:01:09.183 --> 00:01:11.642 -Come on, I'll give you $600 right there. 35 00:01:11.682 --> 00:01:13.469 -No, this is my day. This is it. 36 00:01:13.509 --> 00:01:16.097 -So if I offered you $10,000, you literally wouldn't do it? 37 00:01:16.137 --> 00:01:17.099 -No. No. 38 00:01:17.139 --> 00:01:18.187 -No price? 39 00:01:18.227 --> 00:01:18.843 -No price. 40 00:01:18.883 --> 00:01:21.564 Now maybe this guy's ticket really is priceless. 41 00:01:21.604 --> 00:01:24.184 We'll check in with him later to find out. 42 00:01:24.224 --> 00:01:25.297 But, whether his 43 00:01:25.337 --> 00:01:28.888 or any of the other fans' economic thinking is sound 44 00:01:28.928 --> 00:01:30.657 depends on whether the benefit 45 00:01:30.697 --> 00:01:33.597 is equal to or greater than the cost. 46 00:01:33.637 --> 00:01:35.225 The total cost. 47 00:01:35.265 --> 00:01:39.064 In economics what's known as the opportunity cost. 48 00:01:39.104 --> 00:01:42.331 Everything which is given up to get something else. 49 00:01:42.371 --> 00:01:46.252 In this case, what's given up to attend this game. 50 00:01:46.292 --> 00:01:48.891 How does an economist look at opportunity cost? 51 00:01:48.931 --> 00:01:52.539 We asked Professor Mary Stevenson, of Boston College's rival, 52 00:01:52.579 --> 00:01:54.696 The University of Massachusetts. 53 00:01:54.736 --> 00:01:57.746 -Well, it's the single most important concept in economics. 54 00:01:57.786 --> 00:02:00.854 It's the choices that we have to make 55 00:02:00.894 --> 00:02:03.949 and what we sacrifice when we make a choice. 56 00:02:03.989 --> 00:02:07.037 For many of us, we have hard choices to make 57 00:02:07.077 --> 00:02:10.180 about how we're going to spend our limited money. 58 00:02:10.220 --> 00:02:14.271 But even for people who have lots more money than we do 59 00:02:14.311 --> 00:02:16.621 there's still a question of how you're going to spend your time. 60 00:02:16.661 --> 00:02:18.569 Even somebody like Bill Gates 61 00:02:18.609 --> 00:02:22.454 has to make choices about how to spend his time because 62 00:02:22.494 --> 00:02:26.667 he has the same hours in the day that the rest of us do. 63 00:02:26.707 --> 00:02:30.233 -In other words, the practical implication of scarcity in economics 64 00:02:30.273 --> 00:02:35.000 is that everything we do has a cost. An opportunity cost. 65 00:02:35.040 --> 00:02:36.715 Suppose, for example, that we ask 66 00:02:36.755 --> 00:02:38.783 Nobel laureate economist Robert Solow 67 00:02:38.823 --> 00:02:40.873 to speak to your class. 68 00:02:40.913 --> 00:02:44.115 In economic terms, how would he analyze it? 69 00:02:44.155 --> 00:02:48.478 -I’d say to myself, what would I do with the time and trouble 70 00:02:48.518 --> 00:02:50.974 that it's going to take me to prepare for this class, 71 00:02:51.014 --> 00:02:54.886 give the class, answer the questions, come back home, 72 00:02:54.926 --> 00:02:58.798 take a shower, and settle down for the evening. 73 00:02:58.838 --> 00:03:02.812 And, uh, that will give me a number. 74 00:03:02.852 --> 00:03:04.949 Suppose I can value that time and trouble. 75 00:03:04.989 --> 00:03:07.018 The thing I would do instead of doing that 76 00:03:07.058 --> 00:03:11.585 is something that I would pay $1,000 to do. 77 00:03:11.625 --> 00:03:13.842 Then, what I should say is, that any price 78 00:03:13.882 --> 00:03:18.993 over and above $1,000 makes this a net gain for me. 79 00:03:19.033 --> 00:03:22.135 That doesn't say I should ask for $1,000 fee. 80 00:03:22.175 --> 00:03:26.919 I should ask for the largest fee that I think the sucker will pay. 81 00:03:26.959 --> 00:03:32.180 But, if that largest fee is not as much as $1,000 then I won't go. 82 00:03:32.220 --> 00:03:35.148 -As it turns out this is a rather old idea. 83 00:03:35.188 --> 00:03:38.899 As we learn from the man on the $100 bill, Ben Franklin, 84 00:03:38.939 --> 00:03:42.106 who expressed it somewhat differently in the late 1700s. 85 00:03:42.146 --> 00:03:44.846 -You sir, once wrote that time is money 86 00:03:44.886 --> 00:03:48.103 and 250 years later it has become a cliché. 87 00:03:48.143 --> 00:03:49.861 What was it exactly that you wrote? 88 00:03:49.901 --> 00:03:53.054 -Well, it was somewhat more than that 89 00:03:53.094 --> 00:03:56.400 in my little epistle advice to a young tradesman. 90 00:03:56.440 --> 00:03:58.468 -In a pamphlet advice to a young tradesman, 91 00:03:58.508 --> 00:04:01.405 which Ben published himself in 1748 92 00:04:01.445 --> 00:04:03.047 he coined the famous phrase, 93 00:04:03.087 --> 00:04:05.985 using as his example a worker who usually makes 94 00:04:06.025 --> 00:04:09.980 10 shillings a day but chooses to work only half a day, 95 00:04:10.020 --> 00:04:13.134 then hits the pub and spends six pennies there. 96 00:04:13.174 --> 00:04:16.370 -Remember that time is money. 97 00:04:16.410 --> 00:04:20.965 He that can earn 10 shillings a day by his labor and goes abroad 98 00:04:21.005 --> 00:04:24.100 or sits idle one-half of that day, though he but spends 99 00:04:24.140 --> 00:04:26.305 but 6 pence during his diversion 100 00:04:26.345 --> 00:04:29.812 ought not to reckon that the only expense. 101 00:04:29.852 --> 00:04:35.804 He has really spent, or rather thrown away, 5 shillings besides. 102 00:04:35.844 --> 00:04:37.602 -So, your point is that time is money 103 00:04:37.642 --> 00:04:39.541 in the sense that he's foregone 104 00:04:39.581 --> 00:04:41.854 the 5 shillings he would otherwise have made. 105 00:04:41.894 --> 00:04:44.246 -He has not the opportunity, right. 106 00:04:44.286 --> 00:04:47.198 -Ah, and they now call that opportunity cost, you know? 107 00:04:47.238 --> 00:04:50.666 -I've not heard of that. Opportunity cost. 108 00:04:50.706 --> 00:04:52.805 -The cost of having been idle 109 00:04:52.845 --> 00:04:54.563 when he could have been earning money. 110 00:04:54.603 --> 00:04:57.340 -Ah! I see your point, I see your point. 111 00:04:57.380 --> 00:04:58.726 -I think it was your point, sir.