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  • Sometimes, a new exciting opportunity presents itself when we are completely happy about our existing life situation.

  • If that happens, we are forced to think about opportunity costs.

  • This is because when we look at the new opportunity

  • we compare it with our current situation and think about what is at stake if we would go for it.

  • This often happens without us being able to see the full picture.

  • Economists define opportunity cost as the benefit we forgo as we trade off one alternative for another, hoping we make the best choice.

  • Although they are often less obvious and sometimes speculative, opportunity costs can be huge; therefore, learning about them makes sense.

  • Imagine that we are trying to calculate the true cost of going to college.

  • One factor can be tuition, which, in our case, is $10,000.

  • Since that's our only cost, you might conclude that the cost of college is $10,000 a year.

  • But to economists, that's not quite right.

  • Because we have to add the money we could've earned by working instead of attending college.

  • Let's say that by working full-time in a local restaurant, you can earn $20,000 a year.

  • The true costs of going to college are, therefore, $10,000 tuition plus $20,000 in opportunity costs.

  • By studying for a degree, we trade off $30,000 a year.

  • Although that's only half the story because it also goes the other way around.

  • Assuming we go to college for 4 years, we trade off $120,000 for an education that leaves us with empty pockets, many ideas, and a degree.

  • However, once we are better educated, we might be able to make $40,000 as a manager instead of the $20,000 in service.

  • In such a case, not going to college ends up being much more expensive.

  • Do you understand the concept?

  • Show us!

  • Calculate the opportunity costs of a high school student who drops the idea of earning a degree in medicine and, instead, chooses to help in the family business.

  • The cost for tuition and living is $2,000 a month.

  • It takes a total of 6 years to finish university.

  • After obtaining her degree, she works in the field of medicine for 34 years, earning $10,000 a month and spending $3,000 on monthly living expenses.

  • If she is entering the family business, she earns $3,500 right away for the next 40 years with zero living expenses.

  • What's, financially, the better choice?

  • Post your calculations in the comments below.

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  • That's

Sometimes, a new exciting opportunity presents itself when we are completely happy about our existing life situation.

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