GAVIN KEETON: Economics counts the true cost of misspending
ECONOMISTS are often criticised for using confusing technical jargon and abstract mathematical models to explain everyday realities. While there is some truth in this claim, an understanding of economics provides important insights that would be lost unless viewed in the formal way economists interpret the world.For example, economics students are told the true cost of a good is not the price customers pay for it, nor its cost of production. Its true cost is what economists call its "opportunity cost" — the value of the alternative goods that could have been bought or produced in its place.So, the cost of repeating a year at university is not just the cost of an extra year’s fees. It is the much greater cost of the alternatives lost by repeating the year. This "opportunity cost" of a working career reduced by a year is the loss of what could have been earned in the individual’s last year before retirement.In cases where an entire country suffers opportunity cost, the values are very...
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