6 PART ONE INTRODUCTION spend on tuition, books, room, and board. Yet this total does not truly represent what you give up to spend a year in college The first problem with this answer is that it includes some things that are not really costs of going to college. Even if you quit school, you would need a place to sleep and food to eat. Room and board are costs of going to college only to the ex- tent that they are more expensive at college than elsewhere. Indeed, the cost of room and board at your school might wn this case, the savings on room and board you would pay living on your own are a benefit of going to college. The second problem with this calculation of costs is that it ignores the largest cost of going to college-your time. When you spend a year listening to lectures reading textbooks, and writing papers, you cannot spend that time working at a job. For most students, the wages given up to attend school are the largest single cost of their education opportunity cost The opportunity cost of an item is what you give up to get that item. When whatever must be given up to obtain making any decision, such as whether to attend college, decisionmakers should be some item aware of the opportunity costs that accompany each possible action. In fact, they sually are. College-age athletes who can earn millions if they drop out of school and play professional sports are well aware that their opportunity cost of college is very high. It is not surprising that they often decide that the benefit is not worth the cost PRINCIPLE 3: RATIONAL PEOPLE THINK AT THE MARGIN Decisions in life are rarely black and white but usually involve shades of gray When it's time for dinner, the decision you face is not between fasting or eating ke a pig, but whether to take that extra spoonful of mashed potatoes. When ex ams roll around, your decision is not between blowing them off or studying 24 hours a day, but whether to spend an extra hour reviewing your notes instead of marginal changes watching TV. Economists use the term marginal changes to describe small small incremental adjustments to a mental adjustments to an existing plan of action. Keep in mind that"margin plan of action means"edge, "so marginal changes are adjustments around the edges of what you In many situations, people make the best decisions by thinking at the margin Suppose, for instance, that you asked a friend for advice about how many years to stay in school. If he were to compare for you the lifestyle of a person with a Ph. D to that of a grade school dropout, you might complain that this comparison is not helpful for your decision. You have some education already and most likely are deciding whether to spend an extra year or two in school. To make this decision, ou need to know the additional benefits that an extra year in school would offer (higher wages throughout life and the sheer joy of learning)and the additional costs that you would incur(tuition and the forgone wages while you're in school) By comparing these marginal benefits and marginal costs, you can evaluate whether the extra year is worthwhile As another example, consider an airline deciding how much to charge passen- gers who fly standby. Suppose that flying a 200-seat plane across the country costs the airline $100,000. In this case, the average cost of each seat is $100,000/200, which is $500. One might be tempted to conclude that the airline should never sell a ticket for less than $500. In fact, however, the airline can raise its profits by6 PART ONE INTRODUCTION spend on tuition, books, room, and board. Yet this total does not truly represent what you give up to spend a year in college. The first problem with this answer is that it includes some things that are not really costs of going to college. Even if you quit school, you would need a place to sleep and food to eat. Room and board are costs of going to college only to the ex￾tent that they are more expensive at college than elsewhere. Indeed, the cost of room and board at your school might be less than the rent and food expenses that you would pay living on your own. In this case, the savings on room and board are a benefit of going to college. The second problem with this calculation of costs is that it ignores the largest cost of going to college—your time. When you spend a year listening to lectures, reading textbooks, and writing papers, you cannot spend that time working at a job. For most students, the wages given up to attend school are the largest single cost of their education. The opportunity cost of an item is what you give up to get that item. When making any decision, such as whether to attend college, decisionmakers should be aware of the opportunity costs that accompany each possible action. In fact, they usually are. College-age athletes who can earn millions if they drop out of school and play professional sports are well aware that their opportunity cost of college is very high. It is not surprising that they often decide that the benefit is not worth the cost. PRINCIPLE #3: RATIONAL PEOPLE THINK AT THE MARGIN Decisions in life are rarely black and white but usually involve shades of gray. When it’s time for dinner, the decision you face is not between fasting or eating like a pig, but whether to take that extra spoonful of mashed potatoes. When ex￾ams roll around, your decision is not between blowing them off or studying 24 hours a day, but whether to spend an extra hour reviewing your notes instead of watching TV. Economists use the term marginal changes to describe small incre￾mental adjustments to an existing plan of action. Keep in mind that “margin” means “edge,” so marginal changes are adjustments around the edges of what you are doing. In many situations, people make the best decisions by thinking at the margin. Suppose, for instance, that you asked a friend for advice about how many years to stay in school. If he were to compare for you the lifestyle of a person with a Ph.D. to that of a grade school dropout, you might complain that this comparison is not helpful for your decision. You have some education already and most likely are deciding whether to spend an extra year or two in school. To make this decision, you need to know the additional benefits that an extra year in school would offer (higher wages throughout life and the sheer joy of learning) and the additional costs that you would incur (tuition and the forgone wages while you’re in school). By comparing these marginal benefits and marginal costs, you can evaluate whether the extra year is worthwhile. As another example, consider an airline deciding how much to charge passen￾gers who fly standby. Suppose that flying a 200-seat plane across the country costs the airline $100,000. In this case, the average cost of each seat is $100,000/200, which is $500. One might be tempted to conclude that the airline should never sell a ticket for less than $500. In fact, however, the airline can raise its profits by opportunity cost whatever must be given up to obtain some item marginal changes small incremental adjustments to a plan of action