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Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance or an Arbitrary Concept?

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  • Joel Potter
  • Shane Sanders

Abstract

asked 199 professional economists a multiple‐choice question about opportunity cost. Given that only 21.6% answered “correctly,” they conclude that professional understanding of the concept is “dismal.” We challenge this critique of the profession. Specifically, we allow for alternative opportunity cost accounting methodologies—one of which is derived from the term's definition as found in Ferraro and Taylor— and rely on the conventional relationship between willingness to pay and substitute goods to demonstrate that every answer to the multiple‐choice question is defensible. The Ferraro and Taylor survey question suggests difficulties in framing an opportunity cost accounting question, as well as a lack of coordination in opportunity cost accounting methodology. In scope and logic, we conclude that the survey question does not, however, succeed in measuring professional understanding of opportunity cost. A discussion follows as to the concept's appropriate role in the classroom.

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  • Joel Potter & Shane Sanders, 2012. "Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance or an Arbitrary Concept?," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 248-256, October.
    • Handle: RePEc:wly:soecon:v:79:y:2012:i:2:p:248-256
    DOI: 10.4284/0038-4038-2011.218
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    1. Ferraro Paul J & Taylor Laura O, 2005. "Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-14, September.
    2. William E. Becker, 2007. "Quit Lying and Address the Controversies: There are No Dogmata, Laws, Rules or Standards in the Science of Economics," The American Economist, Sage Publications, vol. 51(1), pages 3-14, March.
    3. Frank H. Knight, 1928. "A Suggestion for Simplifying the Statement of the General Theory of Price," Journal of Political Economy, University of Chicago Press, vol. 36(3), pages 353-353.
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    5. Mark Thornton, 2007. "Richard Cantillon and the Discovery of Opportunity Cost," History of Political Economy, Duke University Press, vol. 39(1), pages 97-119, Spring.
    6. Frank H. Knight, 1934. ""The Common Sense of Political Economy" (Wicksteed Reprinted)," Journal of Political Economy, University of Chicago Press, vol. 42(5), pages 660-660.
    7. Wicksteed, Philip H., 1914. "The Scope and Method of Political Economy," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 24, pages 1-23.
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