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Quotation of the Day…

… is from page 153 of the 2010 Revised Edition of James D. Gwartney’s, Richard L. Stroup’s, Dwight R. Lee’s, and Tawni H. Ferrarini’s superb Common Sense Economics:

We usually perceive costs as something that should be kept as low as possible.  But remember, costs reflect the highest valued opportunity given up when we choose an option.  Thus, when you have attractive alternatives, your choices will be costly.  Furthermore, as you improve your skills and your opportunities become even more attractive, the choice of an option will be still more costly.  In contrast, your costs will be low when you have very few good choices.

This truth is very important.  It shows, for example, that while on the whole it is much better to be a worker with rare and highly valued skills rather than a worker whose only skills are ones that are in great abundance in the pool of workers (and, hence, not highly valued in any one worker), a silver lining around the cloud of being a low-skilled worker is that the opportunity cost of searching for another job is typically quite low.  Save for workers who are literally on the verge of starvation and can’t afford to miss a single paycheck lest they or their families suffer terrific calamities – workers who are almost non-existent in modern America – the cost to low-skilled workers of taking time off of work, or even of quitting their current jobs, in order to search for new and better jobs is lower than is the cost incurred by higher-skilled (and, hence, higher-paid) workers of doing the same.  This reality is one of the many reasons why assertions that the market for low-skilled workers in America is infected with monopsony power are quite implausible.


(The most profound and thorough treatment of the nature and economics of opportunity costs remains my late colleague Jim Buchanan‘s short 1969 volume, Cost and Choice – a brilliant book that is as philosophically deep as it is economically insightful.)