Economics: Unit I Productivity & Making Choices
Jan 05, 2016
Economics:Unit I
Productivity & Making Choices
Questions for focus[standards SSEF1 & 2]
• What does resource allocation mean?• What is a trade-off?• What is opportunity cost?• How do people make rational decisions when
confronted with scarcity?• What is a cost-benefit analysis? (rational decision benefits>/= costs)• What is a production possibilities curve?
Resource allocation• How people or
governments determine who gets what
• US $$$, China government decides
• Traditional systems (Native tribes): trade (barter)
Trade-off•Choices people must make when faced with scarcity
Opportunity cost• The cost of the next-best alternative use of money,
time or resources
Vacation or car payments/insurance/upkeep?
$1500 to spend
How do you make rational decisions when confronted with scarce resources?
• How do you decide how you spend your money?• More satisfaction? Highest/best return?
How would you spend $1000?
Cost-benefit analysis• Comparing the cost of an action to the benefits
Jeans vs. soccer cleatsYou have $300 to spend.
You’re a soccer player and you need new cleats (your old cleats are worn out). You’re also a student, and you need new jeans for school (for the same reasons).
• What do you do?• Reasons to buy the cleats:• Reasons to buy the jeans:• How can you get both? Is
there some kind of compromise?
Rational decision making• A rational decision is when the benefits outweigh or are equal to the
costs. (This can be subjective!)• Classic example: “guns” vs. “butter”• Which is more important? Security/protection, or education/health
care/roads/consumer products?• Cost benefit analysis: can these issues be analyzed in terms of $?
Production possibilities curve