Do economists recognize an opportunity cost when they see one? A dismal performance or an arbitrary concept?

Joel Potter, Shane Sanders

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

Ferraro and Taylor (2005) 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.

Original languageEnglish (US)
Pages (from-to)248-256
Number of pages9
JournalSouthern Economic Journal
Volume79
Issue number2
DOIs
StatePublished - Oct 1 2012
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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