Development that Works
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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • Opportunity costs



    costos oportunidad eng

    One of the things you first learn in economics is the concept of opportunity cost, and it is probably one of the things you forget fastest. So it is useful to have it explained in layman’s terms:

    Applying opportunity-cost theory won’t always change your behavior but can simply be a useful tool to understand why things are the way they are.

    When I was pregnant and visiting my OB every few weeks, I waited for the doctor every single time. Sometimes for as long as an hour.  I was furious.

    Didn’t they know my time was valuable? But consider this: Because of the way appointments like this work—because they are unpredictable in length—someone will have to wait.

    Either the doctor schedules long appointments and sometimes she waits for you, or she schedules short appointments and sometimes you wait for her.

    Doctors are very highly paid, and, therefore their opportunity cost is very high. For most of the rest of us, our opportunity cost is lower. If someone has to wait, it’s efficient for it to be the person with the lower opportunity cost. In other words, you.

    The only inefficiency here is that you can’t outsource waiting for the doctor. Now there is a missing market.

    And please do not confuse it with the concept of sunk cost, which is more related to the time you already wasted waiting for the doctor. So next time you see an opportunity cost, catch it before it goes down in bubbles.

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