Marshall and Shackle on opportunity cost
…or forget all the fancy talk of "opportunity cost." Let’s say you ask, "how much does that apple cost"?
The correct answer is $1.00, the price (gross).
The correct answer is not "the consumer surplus on what the dollar could buy elsewhere" (a net concept).
You can still figure in information about price to get both consumer surpluses and the correct decision.
"*Opportunity* cost" is a means of saying that we don’t just stop at the money ($1.00), but rather we think in terms of a foregone good or service (perhaps a pear, etc.).
But just as "cost" was a gross term, so does "opportunity cost" stay a gross term, it does not become a net one. Only the word "opportunity" has been added to "cost," so why leap from gross to net thinking?
Buchanan and others blur all this when they start talking about the value dimension of opportunity cost. On one hand this is properly subjectivist. But it also encourages people to move to the "net" dimension, and notions of consumer surplus, rather than focusing on the *opportunity*.
G.L.S. Shackle wrote about a "skein of imagined alternatives." This captures the "gross" idea properly, and remains subjectivist, but it doesn’t encourage the leap into the mix of net thinking and consumer surplus, which remains a separate concept.
I don’t have any quarrel with Alex’s economics; as far as I can see this point is semantic. (I’ll also admit that my gross perspective on opportunity cost is somewhat anachronistic; it is one reason why mainstream economists work directly with consumer surplus.) What disturbs me is how few economists gave $50 or $40 as the right answer; the actual answers were close to randomly distributed. Most Web-based sources appear confused on the net vs. gross issue, but at least they hover across the $40 and $50 options.