One of the most useful concepts in economics is that of "opportunity cost," which means that everything has two costs, i.e., the dollar cost and the opportunity cost. An example is that a man's suit might cost $300, which is the dollar cost. The opportunity cost might be a man's suit costs three ladies' dresses and a pair of ladies'shoes. The classic example is that our nation can have one new aircraft carrier or it can have one new hospital, fifteen outpatient centers, and a transportation system for patients -- which do we prefer? What opportunities are we willing to give up, in order to get something else?
For many years, I have devoted much of my time to studying and thinking about investing and financial planning. I think I know a good deal about those subjects. But, there is an opportunity cost to spending so much time on those subjects.
I know nothing about televisions and the bewildering universe of high-tech electronics surrounding televisions! That is the opportunity cost to me for studying the things I love.
A few months ago, I went into Best Buy and could not get past the question of "LCD, LED or plasma." Huh? So, being able to recognize what I that don't know, I hired a consultant to go back to Best Buy with me. His dollar cost is part of my opportunity cost.
Today, I am the proud owner of 50" Sony Smart TV, Ultra HD, Wi-Fi certified, 3-D television complete with 3-D glasses. Huh? I'm not sure what all that means, but all the components seem to work together, it fits the room, and it looks unbelievable. The best part is that I didn't have to spend much time learning about all this technology. The time I would have to spend to understand all that would have been a prohibitive opportunity cost for me.
Remember the good-old-days when the only question was "black & white or color" . . . ? For a person to make such a high-tech bundle of decisions . . . well, it does require expertise, and I'll pay for somebody else to have that expertise!
For many years, I have devoted much of my time to studying and thinking about investing and financial planning. I think I know a good deal about those subjects. But, there is an opportunity cost to spending so much time on those subjects.
I know nothing about televisions and the bewildering universe of high-tech electronics surrounding televisions! That is the opportunity cost to me for studying the things I love.
A few months ago, I went into Best Buy and could not get past the question of "LCD, LED or plasma." Huh? So, being able to recognize what I that don't know, I hired a consultant to go back to Best Buy with me. His dollar cost is part of my opportunity cost.
Today, I am the proud owner of 50" Sony Smart TV, Ultra HD, Wi-Fi certified, 3-D television complete with 3-D glasses. Huh? I'm not sure what all that means, but all the components seem to work together, it fits the room, and it looks unbelievable. The best part is that I didn't have to spend much time learning about all this technology. The time I would have to spend to understand all that would have been a prohibitive opportunity cost for me.
Remember the good-old-days when the only question was "black & white or color" . . . ? For a person to make such a high-tech bundle of decisions . . . well, it does require expertise, and I'll pay for somebody else to have that expertise!
