The American Economist

A well-known survey of economists revealed that many of them could not correctly answer a basic question on the concept of opportunity cost. In this paper, I connect the concept of opportunity cost to the familiar apparatus of marginal analysis—the equality of prices and marginal rates of substitution at the margin. When opportunity cost is understood this way, it forces one to be clear about units and about the difference between discrete and continuous variables. A more general understanding of opportunity cost can link basic principles-level examples with more advanced technical examples and improve the stories that make up the rhetoric of basic economics instruction.

Opportunity cost is widely considered to be a fundamental concept in economics. But the definition of the term continues to be both unclear and controversial. I describe how the term is widely used in two distinct ways, both in academic and non-academic contexts. I propose a practical way for educators to clarify the concept and related terminology.

Brand-to-generic drug therapeutic substitution effects on patient health is an important health policy issue. State pharmacy drug product selection (DPS) laws allow pharmacists to more easily switch prescriptions from brand-to-generic drugs. This research measures the effects of DPS laws on statin-patient generic-to-branded drug switch-backs, this being a potential indicator of clinical failure from the initial brand-to-generic substitution. Anonymized patient-level data from 2006–2008 were analyzed on statin drug utilization patterns for 397,111 U.S. patients. Logistic regression results on DPS and non-DPS variables show effects on switch-backs in a manner consistent with implications from a principal-agent framework in healthcare. DPS laws should be reviewed to ensure that drugs dispensed by pharmacists are those intended by physicians and in the best health interests of patients.

Economic analysis of law is applied to various models derived from a recent breach of contract by Hyundai Motor Company (Co.), which overstated the fuel economy of its Elantra model. The paper explores appropriate damages for breach of contract by Hyundai in hypothetical cases involving either intentional or unintentional breach. Depending on the specific scenario, losses may or may not be recoverable. A variety of ways are explored in which to calculate damages that serve to make customers whole.

The Oprah Supply Curve shows the relationship between the quantity of Oprah Winfrey supplied and her income. Although even a Nobel laureate has speculated on the shape of that curve, its shape has not been estimated. We estimate its shape by using variation in the number of new episodes per season of Oprah's television show, The Oprah Winfrey Show. The curve appears to be backward bending. Thus, while Oprah may not be an obvious target for taxation, a higher tax rate might expand the quantity of services she supplies while also increasing tax revenues.

Principles of economics students are often familiar with the term “fair trade” from product packaging and news stories covering ideological issues related to prices and wages paid to producers in developing countries. Through an informal survey of our economics students, we find ignorance about both free trade and fair trade and confusion over the difference between them, with many students concluding that free trade is not fair or equitable. An examination of 20 recent principles of economics textbooks finds that only two mention fair trade, and one uses the term to refer to resale price maintenance rather than to the social movement. Because the fair trade social movement has strong economic implications, we believe that instructors in principles of economics courses should address the topic, however briefly, to reduce any misunderstandings. This would allow instructors to focus on the economic theory underlying the benefits of free trade.