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Monday, February 28, 2005

Opportunity Costs, Renting vs. Buying, and Bad Economic Reasoning

Bill Cholensky over at Cattalarchy has a good example for explaining opportunity costs. He begins

It sometimes amazes me what passes for economic common sense. My pet peeve is the oft-repeated “throwing money away on rent” argument. It’s often followed by something like “You could be putting that money towards equity!”

The idea that one is wasting money by paying rent is absurd. Has no one heard of Opportunity Cost? Buying a given house might be a good investment, but living in that house isn’t necessarily a good idea. A good investment is a good investment. A good place for one to live might be somewhere else. They don’t necessarily coincide.

Click here for the whole piece.

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