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Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science

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  • Ferraro Paul J

    (Georgia State University)

  • Taylor Laura O

    (Georgia State University)

Abstract

One expects people with graduate training in economics to have a deeper understanding of economic processes and reasoning than people without such training. However, as others have noted over the past 25 years, modern graduate education may emphasize mathematics and technique to the detriment of economic reasoning. One of the most important contributions economics has to offer as a discipline is the understanding of opportunity cost and how to apply this concept to all forms of decision making. We examine how PhD economists answer an introductory economics textbook question that requires identifying the relevant opportunity cost of an action. The results are not consistent with our expectation that graduate training leads to a deeper understanding of the concept. We explore the implications of our results for the relevance of economists in policy, research, and teaching.

Suggested Citation

  • Ferraro Paul J & Taylor Laura O, 2005. "Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-12, September.
    • Handle: RePEc:bpj:bejeap:v:contributions.4:y:2005:i:1:n:7
    DOI: 10.2202/1538-0645.1469
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    Citations

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    Cited by:

    1. Daniel F. Stone, 2015. "Clarifying (Opportunity) Costs," The American Economist, Sage Publications, vol. 60(1), pages 20-25, May.
    2. James K. Self & William E. Becker, 2016. "Teaching and Learning Alternatives to a Comparative Advantage Motivation for Trade," The American Economist, Sage Publications, vol. 61(2), pages 178-190, October.
    3. Anthony J Culyer, 2018. "Cost, context and decisions in Health Economics and cost-effectiveness analysis," Working Papers 154cherp, Centre for Health Economics, University of York.
    4. William E. Becker, 2007. "Quit Lying and Address the Controversies: There are No Dogmata, Laws, Rules or Standards in the Science of Economics," The American Economist, Sage Publications, vol. 51(1), pages 3-14, March.
    5. Rod O'Donnell, 2010. "Opportunities Lost and Regained in the Land of Opportunity Cost," Working Paper Series 163, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    6. Luke M. Froeb & James C. Ward, 2011. "Teaching Managerial Economics with Problems Instead of Models," Chapters, in: Gail M. Hoyt & KimMarie McGoldrick (ed.), International Handbook on Teaching and Learning Economics, chapter 59, Edward Elgar Publishing.
    7. Zur Shapira & J. Myles Shaver, 2014. "Confounding changes in averages with marginal effects: How anchoring can destroy economic value in strategic investment assessments," Strategic Management Journal, Wiley Blackwell, vol. 35(10), pages 1414-1426, October.
    8. Joel Potter & Shane Sanders, 2012. "Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance or an Arbitrary Concept?," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 248-256, October.
    9. William Polley, 2014. "Do students recognize an opportunity cost when they see one? Evidence from introductory economics," Economics Bulletin, AccessEcon, vol. 34(3), pages 1550-1556.
    10. Basu Sudipta & Waymire Gregory B., 2019. "Historical Cost and Conservatism Are Joint Adaptations That Help Identify Opportunity Cost," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 9(1), pages 1-13, March.
    11. Dumbrell, Nikki P., 2019. "Book reviews: Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(3), July.
    12. Sheetal Bharat, 2020. "Opportunity Cost: Beginning, Evolution And A Much-Needed Clarification," BASE University Working Papers 02/2020, BASE University, Bengaluru, India.
    13. Cole, Scott, 2012. "Equity over Efficiency: A Problem of Credibility in Scaling Resource-Based Compensatory?," CERE Working Papers 2012:12, CERE - the Center for Environmental and Resource Economics.
    14. Howden, David, 2016. "Finance Behind the Veil of Money: Response to Dr. Braun’s Comment," MPRA Paper 79798, University Library of Munich, Germany.
    15. Jong-Shin Wei, 2013. "On Teaching Price Elasticity of Demand and Change in Revenue due to Price Change -- A Synthesis with and without Calculus," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 12(1), pages 1-14, June.
    16. Lee C. Spector & Courtenay C. Stone, 2010. "Suspicious Estimates of Ex Ante Real Interest Rates: Evidence of Macroeconomic Malpractice?," Working Papers 201010, Ball State University, Department of Economics, revised Oct 2010.
    17. William J. Polley, 2015. "The Rhetoric of Opportunity Cost," The American Economist, Sage Publications, vol. 60(1), pages 9-19, May.
    18. Hafizur Rahman & Jim Seldon & Zéna Seldon, 2012. "The Opportunity Cost of Education: Where Do the Lost Years Go?," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 12(1), pages 43-52, Fall.
    19. Frank G. Sandmann & Julie V. Robotham & Sarah R. Deeny & W. John Edmunds & Mark Jit, 2018. "Estimating the opportunity costs of bed‐days," Health Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 592-605, March.
    20. Marc F. Bellemare, 2018. "Contract farming: opportunity cost and trade†offs," Agricultural Economics, International Association of Agricultural Economists, vol. 49(3), pages 279-288, May.
    21. Rod O'Donnell, 2010. "A Critique of the Threshold Concept Hypothesis and an Application in Economics," Working Paper Series 164, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    22. Chang, Kuo-Ping, 2019. "Behavioral Economics versus Traditional Economics: Are They Very Different?," MPRA Paper 96561, University Library of Munich, Germany.
    23. Daniel Arce & Sherry Li, 2011. "Profits, Layoffs, and Priorities," Journal of Business Ethics, Springer, vol. 101(1), pages 49-60, June.

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    Keywords

    economic literacy; graduate education;

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