Solved Problem: How Much Did Using a Ticket to a Taylor Swift Concert Cost You?

Supports: Microeconomics, Macroeconomics, Economics, and Essentials of Economics, Chapter 1.

Photo of Taylor Swift from the Wall Street Journal.

Suppose that as a “verified fan” of Taylor Swift, you are able to buy a ticket to one of her concerts for $215. The price of the ticket isn’t refundable. (We discuss how Taylor Swift handles the sale of tickets to her concerts in the Apply the Concept “Taylor Swift Tries to Please Fans and Make Money” in Microeconomics and in Economics, Chapter 10, and in Essentials of Economics, Chapter 7.) You had been hoping to work a few hours of overtime at your job to earn some extra money. The day of the concert, your boss tells you that the only overtime available for the next month is that night from 6 pm to 10 pm—the same time as the concert. Working those hours of overtime will earn you $100 (after taxes). You check StubHub and find that you can resell your ticket for $1,000 (afer paying StubHub’s fee).

Given that information, briefly explain which of the following statements is correct:

1. If you attend the concert, the cost of using your ticket is $215—the price that you paid for it.
2. If you attend the concert, the cost of using your ticket is $1,000—the amount you can resell your ticket for.
3. If you attend the concert, the cost of using your ticket is $1,000 + $100 = $1,100—the amount you can resell your ticket for plus the amount you would have earned from working overtime rather than attending the concert.
4. If you attend the concert, the cost of using your ticket is $1,000 + $100 – $215 = $885—the amount you can resell your ticket for plus the amount you would have earned from working overtime rather than attending the concert minus the price you paid to buy the ticket. 

Solving the Problem

Step 1: Review the chapter material. This problem is about the concept of opportunity cost, so you may want to review Chapter 1, Section 1.2.

Step 2: Solve the problem by using the concept of opportunity cost to determine which of the four statements is correct. Economists measure the cost of engaging in an activity as an opportunity cost—the value of what you have to give up to engage in the activity. Using this definition, only statement c. is correct; if you decide to use your ticket to attend the concert you will give up the $1,000 you could have received from selling the ticket plus the $100 you fail to earn as a result of attending the concert rather than working overtime. Note that the price you paid for the ticket isn’t relevant to your decision whether to attend the concert because the price of the ticket is nonrefundable. (The amount you paid for the ticket is a sunk cost because it can’t recovered. We discuss the role of sunk costs in decision making in Microeconomics and Economics, Chapter 10, Section 10.4, and in Essentials of Economics, Chapter 7, Section 7.4.)