Ask a friend how much that hamburger cost him and his response might be something like, “It cost me $5.” If he were economically savvy, he might include in his response the value to him of what he would have spent that $5 on if he hadn’t bought the burger plus the time it takes him to consume it (which he could have spent doing something else). By contrast, ask the manager of the restaurant where your friend bought the hamburger how much that burger cost and her response might be “It cost me $0.50s worth of labor, $0.50 in ingredients, and $2.50 in rent, insurance, overhead, gas, electricity, maintenance, and equipment.” And if the manager had taken a good economics course she might include the value to her of other things she could have spent that money on and also the value of what she would have done had she not decided to sell hamburgers.
These costs involving our alternative choices are called “opportunity costs.” In economics, all costs that are relevant to decision‐making, unless otherwise specified, are opportunity costs. But which perspective should you take if you’re trying to answer the question, “How much does that hamburger cost”? Whose point of view, even if we rightly include opportunity costs, is the “correct” one? How might this help us to analyze issues of public policy?