The new Alchian and Allen book Universal Economics is out. The publisher reports the authors have collaborated to produce a ”fresh, final presentation of the analytical tools” contained in their famous (among a certain kind of economics nerd) textbooks University Economics and Exchange and Production.
In introducing the idea of opportunity cost in the new book, Alchian and Allen give us a “kid in the candy store example.” Alchian and Allen get their explanation wrong.
From the new Alchian and Allen:
A candy-store owner told Annie: “I want to give you some candy for free. Select whichever one you want.” She responded, “Thank you. But it’s not free!” Annie’s smart! She recognized that choosing her favorite, Snickers, is costly. She would have to give up here next best-liked candy, a bag of M&Ms—her alternate personal highest-worth good. Costs can occur in several forms, and some things that are not…
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