Opportunity Cost

Lets break briefly from Katrina, and take a pop quiz...

Virtually all economists consider opportunity cost a central concept. Yet a recent study by Paul J. Ferraro and Laura O. Taylor of Georgia State University suggests that most professional economists may not really understand it. At the 2005 annual meetings of the American Economic Association, the researchers asked almost 200 professional economists to answer this question:

'You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, (c) $40, or (d) $50.'

Hint: The answer is in the article. Link

Another hint: The opportunity cost of seeing Clapton is defined as the cost associated with foregoing Dylan. And that cost is equal to the consumer surplus you would have garnered had you seen Dylan.

Yet another hint: Its not (a), (c), or (d).