MILLER Question 06: Substitution Effect - Pretend when you go to the movies you
always get something to eat. Generally, popcorn, but it doesn't have to be. Popcorn
is $6 a box and you also notice this week boxes of candy at $2 each. What is the
opportunity cost of the popcorn? Hopefully, you will say three boxes of candy. If I get
the popcorn, I could have had three boxes of candy. Hum, maybe the candy is a
better deal - three boxes, that's pretty good! Hum, maybe I'll go with the candy this
time?
But let's say this week at the movies, there's a sale on popcorn. It's only $4 a box.
Now the opportunity cost is less, only two boxes of candy. Last week you actually
took the three boxes of candy instead of the popcorn, but you know, this week, you
guess you'll take the popcorn. You're only giving up two boxes of candy.