Economics 101 for Catholics WHAT IS COST?

Aug 5, 2006

When a person says “cost” they are usually confusing it somewhat with “price.”  We say that this soda “cost” me $1.00.  But cost is much more complicated than that, and the discussion of it can be very revealing.  

For an economist, cost is “opportunity cost.” That means that cost is not money, but what you had to give up to get what you got.  If I have a dollar and I am hungry and thirsty, and a soda and a candy bar are each $1.00, I cannot have both.  If I choose the soda, the cost of the soda was the candy bar and vice versa.  This concept of opportunity cost emphasizes the abilities of human beings to freely choose between alternatives, and then take responsibility for their choices.  If you chose the candy bar, in doing so, you sacrificed the soda, and you cannot have it.

But there is more.  Cost has two aspects: accounting or explicit costs, which are the actually money spent, and economic costs, which consider accounting costs and implicit costs such as time and aggravation.  For example, the next town from me is about 45 minutes away by car.  Suppose I heard that in that town gasoline was selling for 20 cents per gallon cheaper.  If it was in my town, I would just go to that station to get my gas next time.   But if I go to the next town, even if I do save some money (which I might not, depending on how much gas my car uses), time is also a cost to me.  Remember the “Farside” cartoon with Albert Einstein standing by a big blackboard with all this mathematical work on it?  At the end of the gigantic equation you see “= $.”  The caption reads: “Great moments in science: Einstein discovers that time is money.”  

So when figuring cost, one must take into account not just the actual money but other non-monetary factors as well, and one of those factors is time.  

This leads us to a brief discussion of character and economics.  Aristotle rightly says that no one intentionally chooses an evil.  They always choose a good or an apparent good.  Let’s take the case of a high school student who felt that the implicit costs of paying attention were too high, compared to the benefits of being a prankster and a goof-off.  He chose the apparent good of playing instead of the real good of studying, and ignored the time factor.  But, we can see how, later on (time factor) the avoidance of the implicit costs will lead to loss of explicit and implicit benefits.  This person did not learn a skill, cannot get into college, and is now stuck in menial jobs which pay menial salaries.  So, four years of avoidance of the implicit opportunity costs of the inconvenience of learning have now led to the explicit opportunity costs of a decent income, and the implicit opportunity cost of a more satisfying lifestyle.

Parents, and authority figures generally, have the obligation to explain how the world works to young people.  The chances are that this person will not do this with his own children, because he, himself, does not understand how the world works, and unless someone else comes along and shows them the truth in a convincing way, their poverty is doomed to continue.  In a real way, the sins of the father are visited on the son.    

We can apply this to things in the spiritual realm as well.  The opportunity cost of a mortal sin is an eternity in hell.  It is a cost beyond all benefit one could have gotten out of the sin.  Is it worth it?  What are the chances that the person in the above example actually understands this cost either?