Focusing+on+Only+Some+Costs

= Focusing On Only Some Costs=

One pitfall to objective thinking in economics is focusing on only some costs- making a decision without taking into account all the costs that apply, just taking into account the obvious ones. The hidden costs might not be easy to see right away, but they are valued just the same. Hidden costs include opportunity costs or costs to the world around you (Hummer example). Not focusing on all the costs can lead to the inefficient use of time, money, and resources. Opportunity Cost is the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. For example, if one decided to stay home, read the newspaper, spend time with the wife, and edit one's TV script, the opportunity cost would be the Boston College football game that one is not going to. Unfortunately, people usually don't take into account the opportunity cost when making a decision, but apparently TV newsboadcasters from the 70's did.



[For example; imagine that there is a woman who is extremely concerned about preserving the environment and is in the market for a new car. The car dealership where she will buy the car only sells Prius' and Hummers, and there the Prius is hard to get. When she evaluates her needs for driving she discovers that she would be doing little driving each day, and really wouldn't use the car that much. The woman wants a Prius because it is friendlier to the environment. Note, she would be taking the WRONG choice by buying the Prius. This decision would be wrong because she didn't take into accont all of the costs. The hidden cost of buying a Prius is that someone else would have to buy a Hummer, and this other person has a high probability of being someone who drives a lot, or at least more than she does. It would actually be friendlier on the environment, (which was her goal), for her to buy a Hummer because it would mean the Hummer would do less of the driving and the Prius would do more. You must not focus on only some costs because it can lead to the inefficient use of time, money, and resources.]

media type="youtube" key="hbsdlSpA2GU&hl=en&fs=1" height="344" width="425" [Another example is when students choose which college to go to. If for some weird reason a student chose to go to Quendelton State University, they might make the decision without taking into account all the costs. One of the most prolific costs (if you could actually narrow it down to only one) would be not going to a different college. Depending on geographics, there might be hidden costs that must be considered; like transportation costs, the costs of being to close or to far from home, or the cost of buying new clothes that are blue and gold to match QSU's colors when you could have just gone to Colorado State University where their colors are green and white so you could just wear all your old Edina clothes. Truly, it's not that hard to focus on the hidden costs if you know what to look for and you take the time to do it.]

Test Yourself: There is a new gym teacher at EHS who is really concerned about saving trees and the environment and needs a new printer. At the printershop the gym teacher has the option of buying a new high-tech printer that somehow manages to put double the amount of info on one page or a normal one. (There is only one of each printer in the store). The new high-tech ones are in high demand by all the public schools in the area, so if the gym teacher decides to purchase the high-tech one then all the other teachers will have to wait a couple months until one is in stock. The gym teacher evaluates their needs for a printer and realizes they would only use it a very small amount (compared to the other teachers in need of a new one). However, the gym teacher still wants the new high-tech printer because it would conserve paper and be friendlier to the environment. Would this be the right decision?

Links
Focusing on only some costs means that you're not focusing on all the costs when making a decision. Here are links to more information about the other costs that you may be ignoring.

For more on Opportunity Costs go to http://apecon3.wikispaces.com/Opportunity+Cost For more on Implicit costs go to http://apecon3.wikispaces.com/Ignoring+Implicit+Costs For more on failing to ignore sunk costs go to http://apecon3.wikispaces.com/Failing+to+Ignore+Sunk+Costs

Grade Yourself: NO. This teacher would be an idiot for buying a new high-tech printer and is obviously uneducated in the field of economics. This gym teacher is not taking into account ALL of the costs of buying this new high-tech printer. The hidden cost of buying the new high-tech printer is that a teacher who actually teaches a class that involves paper and prints about 20 times the amount of stuff the gym teacher does would have to buy a normal printer. It would actually conserve more paper and be friendlier on the environment (which was the gym teacher's goal) if the gym teacher bought the normal printer which would print a LOT less than the high-tech printer which would be used to print 20 times as much. This gym teacher must remember to focus on ALL costs because if they don't they're wasting precious dollars of the tiny budget we receive as a public school.