Economic value is the value of a good or service, taking into account the opportunity costs of that good or service.
Opportunity costs are trade-offs: essentially, all the options you’re giving up by choosing the option you did. When people want to “keep their options open,” it means they’re afraid of committing to one option, because that closes the door to all the others.
Economic value takes into account market value (how much something costs), but it goes beyond that. Market value says to you, “That chocolate bar costs $3” while economic value says “That chocolate bar costs $3, plus more fat on your bod, plus a shot of serotonin and endorphins, plus three fewer dollars you could be spending on something else...like saving up for some headphones, or buying even better chocolate.”
No wonder economics is the dismal science...it makes you start regretting your choice even before you made it. But looking at all your options before you commit is rational, right?
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Finance: What is Opportunity Cost?348 Views
Finance What is opportunity cost All right Opportunity cost the
value you forfeit by choosing a path a over path
be and path a end or b can mean doing
nothing at all right Here's an example Opportunity cost people
Let's say you have a choice of taking two jobs
One is a safe steady gig with ibm You have
to commit to working there for twenty five years But
the big blue boss has promised that at the end
of that time period you'll get a good watch and
a million dollars twenty five years and a million bucks
and a reasonably decent lifestyle with low risk All right
well that's half a two years into the gig You
notice that a lot of your friends are whining about
taxes and they're buying porsche's You're still paying off school
loans working for ibm there Then ten years later your
friends or buying jets What happened Well they went to
work for a risky start up in silicon valley and
got stock options And of course you think we'll shoot
Where can i get me some of that Well you
committed to the safe steady big blue for twenty five
years you uh paid them with your commitment And in
the process you gave away other opportunities You might have
had teo make real bank by your own jets The
opportunity cost of your desire for a nice safe job
cost you big If you had been lucky enough to
get a Job at 1 of those hot startup you'd
be flushed with cash today just like your buddies All
right Another example And this happens to be a common
google interview question You win two free front row tickets
to a sick poppy's concert which sell on stubhub for
a thousand bucks each You decide to go to the
concert How much did the tickets cost you They were
free You say uh no You could have taken ninety
seconds fill out stub up form and gotten too grand
just selling them You chose not to receive the two
grand go to the concert instead which in a land
of opportunity cost lost is the same as paying two
grand for the tickets In other words money earned and
money lost It is not just counted by the dollar
bills that flow in between your fingers It's the value
in opportunities you take and in the value of the
ones you miss So when you see an opportunity take 00:02:04.09 --> [endTime] it especially if it gets you frequent flyer miles
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