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Next Winter\'s Fuel for the Fireplace


NIRCRBNEM

Number of Items Returned at Cash Register Because of Not Enough Money

From here, Richard Daughty unveils a new inflation indicator. Read more »


Why Non-monetary Opportunity Costs Cannot be Converted

In a previous post, the following opportunity cost problem was re-published and answered with respect to a definition of OC not repeated here. Note that the emphasized sentence below is extraneous for the non-monetary answer presented.

You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, © $40, or (d) $50.

Claimed monetary answer = (b)$10.
Non-monetary answer is the combined subjective benefit package consisting of the desired effect of the subjective satisfaction of seeing the Dylan concert and the undesired effect of giving up $40.

The emphasized sentence is the fundamental step used in trying to convert a non-monetary OC to a monetary one.

What I will attempt to show below is not that this step is invalid in and of itself, but rather that the result is not an opportunity cost, but something else entirely with different characteristics. Furthermore, the problem is not limited to money, but exists for any exchange-valued good that is attempted to be used instead. Read more »


A Deaf Pickpocket and a Bob Dylan Concert

In a 9/2005 post entitled Opportunity Cost, Marginal Revolution reported on the apparent failure of economists of all levels to agree on the answer to an apparently simple problem involving opportunity cost.

You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, (c) $40, or (d) $50.

The claim is that the correct answer is (b) $10.

Included in a couple of previous posts on opportunity cost, here, and here, is a definition of opportunity cost as follows :

The opportunity cost of a choice or action ‘A’ is the projected benefit of choice or action ‘B’, the highest ranked alternative choice or action which is precluded by ‘A’. The precluded benefit of ‘B’ is in general a packaged combination of both desirable and undesirable effects, and only rarely reducible to a net number of some kind. Neither the choice nor the precluded projected benefit are necessarily a part of an objective reality, but are entirely subjective judgments made by the chooser or actor at the moment of choice or action. Read more »


Roth IRA Distribution Tax Puzzle

It is February 1st, 2000, and your 30th birthday.

You begin a lifelong annual process to partially convert $1000 from a fully deductible traditional IRA to a conversion Roth IRA. There will always be sufficient funds in the traditional IRA to continue and the Roth IRA always will have a positive investment return every year.

What is the earliest year, if any, that you can take a complete distribution of the Roth IRA without incurring any tax or penalties?


Aren\'t Computers Supposed to do Arithmetic?

I thought we had reached a meeting of the minds, TurboTax would ask the questions, do the arithmetic and print out my tax return, and leave it up to me to squeeze two pounds of paper into a two ounce envelope and write the check.

But no, TurboTax tells me that even non-itemized medical expenses are exempt from the 10% early distribution penalty for retirement funds to the extent that they exceed 7.5% of Adjusted Gross Income, and then just sits there waiting for me to type in a number. Read more »


Reader Qualification

Angry Bear on Secretary Snow and the Hamilton Project

Don't know what the Hamilton Project is? Read more »


Economic Research, Decomposed

In a previous post, an economic puzzle was published.

Rather than bury it in the comments, I will decompose and dispose of it below the line. Read more »


Economic Research

You are stopped on the sidewalk by a PhD student in economics with a government grant and an armed Homeland Security bodyguard.

He demands that you empty your pockets and give him your wallet.

He then calculates 10% of your cash holding and charges one of your credit cards for that amount. He then cuts all of your credit and debit cards in two.

He then returns 20% of your cash to you and puts the remaining 80% in a large envelope.

You are then given a choice :

1. Take back the envelope with the 80% of your original cash holding.

OR Read more »


Opportunity Cost, Additional Steps

In my previous post on opportunity costs, I noted the following : Read more »


Is Something Missing Here?

From a National Review editorial on immigration:

Poor Trend, by Rich Lowry

The National Research Council reports that an immigrant to the U.S. without a high-school diploma — whether legal or illegal — consumes $89,000 more in governmental services than he pays in taxes during his lifetime. An immigrant with only a high-school diploma is a net cost of $31,000. Eighty percent of illegal immigrants have no more than a high-school degree, and 60 percent have less than a high-school degree.


Opportunity Cost, Step By Step

Opportunity cost is an oft-misunderstood economic concept that attempts to identify just what sacrifice is being made as a result of any choice or action.

A Definition --

The opportunity cost of a choice or action 'A' is the projected benefit of choice or action 'B', the highest ranked alternative choice or action which is precluded by 'A'. The precluded benefit of 'B' is in general a packaged combination of both desirable and undesirable effects, and only rarely reducible to a net number of some kind. Neither the choice nor the precluded projected benefit are necessarily a part of an objective reality, but are entirely subjective judgments made by the chooser or actor at the moment of choice or action.

A series of examples follow. Read more »


Separated By a Common Language

Michigan chucks out violent games law

Michigan’s argument was that because video games were interactive they were less entitled to protection under the First Amendment which guaranteed free speech. Judge George Caram Steeh, of the US District Court, of Eastern District of Michigan seemed to think this argument was pants.


Price vs Value

It seems to me that most people, and especially most non-Austrian economists, tend to erroneously equate price with value. There are too many components involved in completely demonstrating why this is wrong for this short a post, but a simple example may be instructive.

On your way to work in the morning, your typical path takes you to a smoke shop where you spend fifty cents for a newspaper and a dollar for a candy bar. Read more »


Machines and Money, Trust But Verify

More for entertainment value than for any real concern, I decided to prepare a test sample last night for the local Stop and Shop Coinstar coin counter before beginning an extended process of recycling my decades of change accumulation. Unfortunately, my collection has no likely significant content of either collectible coins or silver.

The test sample consisted of $1 each for each of the 6 denominations involved.

1 Eisenhower dollar
2 Kennedy post 1970 halves (no silver)
4 state quarters
10 Franklin non-silver dimes
20 Jefferson nickels
100 Lincoln pennies Read more »