WHAT IS ECONOMICS? Section 2: Opportunity Cost
Dec 31, 2015
WHAT IS ECONOMICS?
Section 2: Opportunity Cost
Trade-Off
The ACT of giving up one thing to get another thing
You can’t have your cake and eat it, too!
Trade-Offs Individual Trade-offs
BUY
SAVE
THISTHAT
Trade-Offs Business Trade-offs
Trade-Offs Government Trade-offs
Guns (military spending)Butter (spending on the people)
Opportunity Costs
Just wait, it’s not so simple …..There are often SEVERAL choices which
need to be sacrificed with trade-offs.○ Some are so ridiculous that it’s easy to drop
them
Opportunity CostsBut some choices are harder to make
because the goods or services are good alternatives!
Opportunity Cost is the BEST thing which you have to give up in a trade-off
Decision Making Grids Opportunity Cost Grid
Alternatives
Sleep Late Wake up Early to Study
Benefits Gotten
Enjoy sleeping Have more energy during the
day
Better grade on the test Teacher and parental
approval Personal satisfaction
Benefits Missed
Better grade on the test Teacher and parental approval Personal satisfaction
Enjoy sleeping Have more energy during
the day
Opportunity Cost(What GOOD alternative did you
give up in order to get this?)Extra time to study Extra time to sleep
THINK ABOUT IT
Please respond to the prompt in your packet
Thinking at the Margin
More realistic approachNot a simple
○ “either/or” choice○ “black/white”
choiceMany shades of
grayInclude little
increments
Thinking at the Margin At the WHAT? Think this way …
This paper is using NO margins. The writing takes the ENTIRE page from left to right. It looks kind of funny because we are used to seeing a margin on both sides of the paper.
But this is an ALL or NOTHING world. It’s all writing and no margin.
This paper is using small margins. The writing takes up most of the page from left to right. It looks more normal because we are used to seeing a margin on both sides of the paper. This is a case where we have some margins.
This paper is using even larger margins. The blank part takes almost all of the page from left to right. We moved the margins just a bit more. In this case, might it be too much?
Decision Making Grids
Cost/Benefit AnalysisA way (process) to look at what is lost
versus what is gained.○ Opportunity COSTS○ Opportunity BENEFITS
Decision Making Grids
Cost/Benefit AnalysisIncludes MARGINAL COSTS
○ What positive opportunities are lost with each increment (portion) of a sacrifice?
○ It’s PORTIONS not “All or Nothing”Includes MARGINAL BENEFITS
○ What positive opportunities are gained with each increment (portion) of a sacrifice?
○ It’s PORTIONS not “All or Nothing”
Decision Making Grids
A POSITIVE Choice is obvious as long as the marginal benefits are greater than the marginal costs!
Option Cost Benefit Is it worth the extra Cost to get the extra
Benefit?Get ONE extra hour of
study time One hour of sleep Grade goes up to a C Yes
Get TWO extra hours of study time Two hours of sleep Grade goes up to a B Yes
Get THREE extra hours of study time Three hours of sleep Grade goes up to a B+ No
Think About It
Please respond to the prompt in your packet