Opportunity Cost: The Concept


I was going to use that title to write about an issue related to Tulsa's Dialog / Visioning process, but when I was googlechecking the definition of the term, I found this fascinating article by Michael T. Killian on opportunity cost as applied to personal finances. The definition given for the phrase is:

the advantage forgone as the result of the acceptance of an alternative

Killian goes on to say that a dollar spent today represents an opportunity cost of $6.70 measured against investing that dollar for 20 years. He suggests that we should think about the opportunity cost when we go to make a purchase -- consider it in terms of dollars, and in terms of hours labored to earn those dollars.

The article has some links to other useful personal finance concepts, including a plan to pay off all your debts in seven years.

In a later entry, I'll apply the concept of opportunity cost at the macro level, to our elected leaders as they consider the proposal before them. But for now, consider the opportunity cost of the Dialog / Visioning tax in the context of family finances. At a price tag of $877 million, it comes to an average $1500 per Tulsa County resident, or $6000 per family of four. That's about $39 / month over 13 years. If that money were invested at, say 6%, adding that $39 each month for 13 years, then letting it sit for the next 7, at the end of 20 years, that family would have over $20,000.

These sorts of tax increases are frequently referred to as an "investment", and if we take that sort of language seriously, it's reasonable to ask what is the return on investment. Would an average family stand to gain more than $20,000 as a result of the items purchased with these new tax dollars?

About this Entry

This page contains a single entry by Michael Bates published on June 30, 2003 1:03 AM.

Footnotes to History: "ephemeral nations" was the previous entry in this blog.

Opportunity Cost: The Danger of Doing Something Rather Than Nothing is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.



Subscribe to feed Subscribe to this blog's feed:
[What is this?]