Considering Implicit (Opportunity) Costs. Why are they overlooked?

This activity is designed for the early part of a principles of microeconomics (or macroeconomics) course. Students will have read the required chapters in an introduction to economics textbook. This is a relatively short exercise that can be done in approximately 10 minutes by groups of no more than five students.

Overview

This activity asks students to consider implicit costs. Exciting opportunities often involve implicit costs. Students will benefit from learning why these costs are sometimes not considered. Implicit costs are an important part of any introductory economics course.

Expected Student Learning Outcomes

Students will evaluate why implicit costs are sometimes not considered. Said differently, it is important to consider implicit (opportunity) costs.

Information Given to Students

[Instructor may certainly consider customizing for other examples.]
You and other students are invited to attend a 2 week study abroad program with your favorite economics professor. The travel and tuition charge will be $7500. Which is the most important reason you and other students might often overlook the implicit costs?
A. It is difficult to accurately measure the cost of a foregone part time summer job for 2 weeks.
B. It is not visible on the bill for the study abroad program.
C. Your accountant (or tax software) will only consider the tuition charge - and not the travel charge - of the study abroad program at tax time.
D. You are so excited that you do not undertake a careful analysis.

A is reasonable because it can be difficult to assess this cost. B is where people often short-change the total costs. C is correct, but many do not consider this aspect. D is an error that anyone can make. Obviously, these situations were crafted for one example, but with some easy edits they can apply to other examples. To avoid unintended consequences, individuals and businesses must learn how to consider implicit costs.

This exercise precedes a homework or exam with the traditional intro microeconomic or macroeconomic questions. A narrative could be given that describes all of the costs (or potential costs) in a situation. Students could be asked how they would estimate costs that are not obvious.