Opportunity Cost: The Hidden Cost of Everything

Every day, we have to make decisions, be it small, like trying a new soap, or huge, like moving abroad. Each such decision comes at a price. This price is the benefit we forego by not choosing the other option. Economists call these benefits “opportunity costs”. Although they are often less obvious and sometimes speculative, opportunity costs can be huge, therefore, learning about them makes sense! Watch our video to learn more about what opportunity costs are, how they work in real life, and how you can calculate the true costs of going to college.

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COLLABORATORS
Script: Jonas Koblin
Artist: Pascal Gaggelli
Voice: Mithrilda
Coloring: Nalin
Editing: Peera Lertsukittipongsa
Head of Partnership Program: Selina Bador
Production: Morgan Lizop
Proofreading: Susan
Sound Design: Miguel Ojeda

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CLASSROOM EXERCISE
Exercise 1: The costs of dropping out of college
Let your class calculate the opportunity costs of a high school student who thinks about dropping out of college to help in the family business instead:

The cost of tuition and living is $2,000 a month.
It takes a total of 6 years to finish university.
After obtaining a degree the student can work in the field of medicine for 34 years earning $10,000 a month and spending $3,000 on monthly living expenses.
If the student is entering the family business he or she earns $3,500 a month right away for the next 40 years with zero living expenses.

What is the cost of dropping out of college?

CHAPTERS
00:00 Intro to Opportunity Cost
00:28 Trade off concept
00:49 Cost of college
01:37 Opportunity cost of college
01:59 Calculation exercise
02:45 Patron credits
02:55 Ending

TAGS
#econ #economics #opportunitycosts #sproutslearning

[dinkopehar]

It all depends on circumstance. A lot of college degrees are not relevant to the current market, so by finishing college, you only get in debt. On the other hand, critical understanding and chasing opportunities can lead to much better success in life. But as Sprouts state, opportunities cost, as money so as time.

[HiramMaxem]

College:
4, 080, 000 Income after 34yrs
252, 000 Lost wages in 6yrs
144, 000 College tuition and living expenses
1, 224, 000 Living expenses after College
2, 460, 000 Total actual profit

Family business:
1, 680, 000 profit after 40yrs

$780, 000 difference over 40 years

However, going to college vs not going is not purely a financial cost/benefit question. There are other factors that might be hard to quantify: growing a family brand or business and potential franchises, being close to your parents/family in their later years, following what makes you happy vs what makes you profits, paying back interests on loans, developing management, people and business skills earlier in life, etc.

Both paths have pros and cons beyond the financial aspect.

[charliepeterson]

I chose to become a private music teacher over studying physics. This allowed me to teach from home, chose where I live and work less hours.

[subjectlife]

IMPROVED Estimates: (thanks to Anthony Zheng)

College route: $2, 712, 000 after 40 years
Family business: $1, 680, 000 after 40 years

ONLY IF SHE
- Enrolls to the right field
- Receive the SAME SALARY from start
- Gets the job ON TIME
- Family business remain on FIXED Earning
- The business doesn't flop

AND
+ The job ends up with pension, but family business doesn't
+ Next generation don't have to start from scratch

( ...constructive criticism requested)

[institches]

Opportunity cost is such a useful concept. It can't always be calculated with money, but it teaches you to weigh the long-term costs and gains of every decision--even non-financial ones.

For example: should you invite someone you don't like to a party? If you do, their presence will make the party less enjoyable. If you don't, their sibling whom you like will stop being your friend. Which is more valuable to you? Enjoyment of the party or the sibling's friendship?

[sprouts]

Support us to make more econ videos at www.patreon.com/sprouts

[christophergibbs]

The moral of the story is college can be a successful tool if used properly or can be financial the ball and chain attached to your leg. Opportunity cost is a simple way to decide which outcome has the best mathematical outcome. Still, it can be an oversimplified tool if all of the pros and cons aren't correctly added to the equation.College has a host of benefits that are not necessarily linked to direct expenses or wages, therefore, the college must be viewed as a circumstantial tool of choice for economic progression, but it is one of our society's greatest status symbols. It's often the cost/benefit of a choice that is not explicit that often has the greatest impact.

[ShawnRavenfire]

Don't forget to calculate the interest on the loans, which depending on the conditions of the loan, can add up to more than you can earn in a lifetime.

[qujin]

There is something can not be calculated, so just follow your intuition and interest, and treat what ever you choose seriously

[mikenixon]

Instead of teaching gender selection in schools, kids need to learn skills to work and live in the real world. Parents need to encourage and teach responsibility as well.

[nrconleynrc]

The obvious answer for the young lady in your example is only fans model.

Glad you did this, too few people appear to factor this concept into their thought process.

[madhankumar]

Cost of tuition and living per month = $ 2, 000/per Month
Duration of studies= 6 Years= 72 Months
Total expense for studies= 2000*72= $144, 000

Working in Medicine for 34 Years
Earning per month = $10000
Monthly expense= $3000
Net monthly income= 10000-3000=$7000
Total income in 34 years= 34*12*7000=$2, 856, 000

Actual income she will get by choosing medicine= 2856000-144000=$2, 712, 000

The actual income she will get by choosing the Family business=40*12*3500=$1, 680, 000

So financially the better decision is to take medicine

[gokulvasamsetty]

Man I've been following this channel for almost an year, these guys make amazing content with very neat illustrations and narration, I still wonder why they have such less subscribers and especially such less views and likes...These Fellas deserve so much more

[thepvporg]

The family business is best option given the opportunity to make more from what you already have is obvious, branching out in to new areas and so on, where as being employed, you are tied to a system that you can't be as flexible as you want to be in... so the family business is better option... assuming your family are upstanding citizens with an ethic that is to work for the group not themselves...

[carynpinkston]

I'm a little disappointed that this video didn't discuss the other costs of going to college - the emotional/mental. Will you feel more fulfilled in a college-educated career, or not? Would it be more helpful or hurtful to your long term mental health to go through the often stressful coursework to earn that degree?

Also, going to college doesn't guarantee a better job. Just ask my dad. :(

[walterbyrd]

You might want to consider the value of experience. In many careers, experience is far more valuable than anything else. If you go to college for four years, that's four years of experience you did not get.
Also, college costs way more than tuition. There is the cost of books, and a huge number of miscellaneous fees. You cannot qualify for most social programs if you are in college.

[insightful_fairy]

I have learning difficulties and have always struggled with education. Therefore, I choose to travel instead of studying and could always pick up casual jobs in the hospitality industry. With the experience and skills I have gained whist working these jobs, I have been able to work my way up to a manager position with a decent wage. For me, this way of living suits me so much more than going to school to study and struggling trying to do the work while at the same time loosing money.

[bruceumba]

The opportunity cost of college isn’t the first four years of work (everybody has the first four years of work), it’s the last four years of work, when you are making the most money. By skipping college you get to work four more years longer. Many people go to college specifically to skip those years.

[chibha]

I am also in this stage of thinking of opportunity costs. I am a design graduate and professional and I find design considered a skill domain when compared to traditional domains such as STEM which is viewed as an academic domain.

[livingdivinity]

Easy, 2000×6×12= 144, 000+ 34×3000×12= 1368, 000
Profit= 340, 000×12-114, 000×12= 2, 712, 000
She gets 3500 per month in family biz, 42000 per year in family biz for 40 years 1, 680, 000
Doctor is better opportunity. Provided she does not make a more profitable investment than 10% which is Max in the states on NBFC and other funds during the six years with 1, 680, 000.
Interests on income of 252, 000 for six years is say 10% interest per annum on investment then the extra earning is 25200. Means she earns 1680, 000+ 25200= 1, 93, 200.
Even the doctor brings more income.