Handout #1: Opportunity vs. Actual Cost
Scenario 1:
As Bill opened the birthday card from his grandmother, he was shocked to find a check for One Thousand Dollars! He couldn't believe it, here he was on his sixteenth birthday with a thousand bucks. His grandmother smiled and gave him a hug. She said, "Today is a special day. I want you to know that this money is yours and you can spend it however you want." Bill was so excited, a million ways to spend the money jumped in and out of his head. Later that night he decided to write down a list of ways that he could use the money. Of course one of the first things that came to his mind was...CAR! Man he would love to have his own car, but $1,000.00 dollars was not nearly enough money to buy a car, although it would make a great down payment and he could get a job to pay the rest. But did he really want a job... so much to do, and he didn't really know if he wanted to add the heavy responsibility of a job. His next idea was a computer. After all, he was planning on going to college in just a couple of years and now-a-days a computer is almost required. Then there was that new stereo he had been looking at. His tiny little boom box was not his idea of awesome sound and besides, the tape player on it was beginning to have problems. And then there was always putting the money in a savings account for later...he remembered over hearing one of his teachers saying that interest rates were excellent. So many choices, but what to do...
1. Analyze Bill's list of ways to spend his birthday money. Identify both the actual costs and the opportunity costs associated with each one of his plans.
Scenario 2:
Randy and Sue Elworth just received their income tax returns for the year and have decided to use the extra money to purchase a brand new 53" Sony Projection TV. The Elworth's live in a small town in northeastern Texas about an hour and a half away from Dallas. There is only one electronic store in their town, Jake's Electronics, and his price is $2199.99. Although Jake's electronics is just down the street, Randy saw an add on TV for the same model TV at Circuit City in Dallas for $1899.99. The price was great, but there was no way they could fit the TV in the back of their Jeep Wrangler, and the store only delivered to locations within a 30-mile radius. Likewise, Sue had received a mail-order catalogue with the same TV for $1949.99. Because the company was located in Mississippi, sales tax did not apply, although delivery was an extra $50.00 and the TV could only be delivered during the week between the hours of 1:00-4:00 p.m.. This meant one of them would have to stay home from work in order to receive the package.
Weigh Randy and Sue's options. What are the costs and benefits associated with each option? (be sure to classify the costs as either actual or opportunity).