A person gives up his social life together with normal job paying
$18,000 per year to enable him to be full time committed to his study
He receives a scholarship $10,000
Expenses for accommodation/food = $5,000
Pays school fees = $16,000
What would be his annual opportunity cost?

Hi down,

First of all, we define what opportunity cost is. 

"When economists refer to the "opportunity cost" of a resource, they
mean the value of the next-highest-valued alternative use of that
resource. If, for example, you spend time and money going to a movie,
you cannot spend that time at home reading a book, and you can't spend
the money on something else. If your next-best alternative to seeing
the movie is reading the book, then the opportunity cost of seeing the
movie is the money spent plus the pleasure you forgo by not reading
the book..."
http://www.econlib.org/library/Enc/OpportunityCost.html

In our question, the opportunity cost of the person's decision to go
back to school is the amount of 'resources' that he need not have
spent or the things he could have had, had he decided NOT to go back
to school. Therefore, the opportunity cost will refer to his social
life he once had PLUS the income he have been earning originally (in
other words, the income that he forgoes) PLUS the expenses he needs to
fork out for his fees.

His annual opportunity cost = $18000 + social life + $16000 (assuming
the fees you quote is for one year.)

Now, you may wonder why accommodation and food is not included in his
opportunity cost. The reason is because these are going to be needed
WHETHER OR NOT he goes back to school. So they can't be considered as
opportunity cost of his decision to go back to school. The scholarship
is also not included in his opportunity cost because the money isn't
his to begin with. (It's from whoever gives him the scholarship.)

For me personally, the concept of opportunity cost is probably the
most useful and practical things I've learnt in econs. Very useful in
making decisions etc... As they say 'when you decide to buy something,
don't always look at the *price* of the product, consider the
*(opportunity) cost* of NOT buying it as well.'


If there's anything you're unsure of, I'd be happy to clarify.


Search Strategy: 

opportunity cost
://www.google.com/search?q=opportunity+cost&hl=en&lr=&ie=UTF-8&start=10&sa=N

Thank you - the answer is similar to what I had in mind - it is now clarified

I would have personally add in the scholarship as reducing the
opportunity cost of studying - assuming, of course, that he only got
this money because he was committed to the study.

Antti