Opportunity Costs & Production Possibilities Curves Chapter 1 Section 2 and 3

Opportunity Costs Everyone including Everyone including Mr. Makela deals with opportunity costs Mr. Makela deals with opportunity costs

Opportunity Costs The value lost by rejecting one use of resources in favor of another. In other words, an action’s opportunity cost is the value of the next best action that is not taken The value lost by rejecting one use of resources in favor of another. In other words, an action’s opportunity cost is the value of the next best action that is not taken EXAMPLE: Mr. Makela decides to go throw darts instead of correcting your homework. What’s the cost? Making money throwing darts and having fun over his job responsibilities EXAMPLE: Mr. Makela decides to go throw darts instead of correcting your homework. What’s the cost? Making money throwing darts and having fun over his job responsibilities

Opportunity Costs Opportunity Cost is what you must give up to obtain something else Opportunity Cost is what you must give up to obtain something else –Your alternative choice

Trade-off Trade-off A trade-off is a sacrifice of one good in order to purchase or produce another A trade-off is a sacrifice of one good in order to purchase or produce another EXAMPLE: Ice cream vs. cake—or football game vs. a movie EXAMPLE: Ice cream vs. cake—or football game vs. a movie

Trade-Offs In a world of scarcity: In a world of scarcity: –producing any one good or service means that other goods & services cannot be produced  and trade-offs are inevitable. –People have to decide what they will do with the limited resources they do have

“Guns or Butter” It’s a phrase expressing the idea that a country that decides to produce more military goods (“guns”) has fewer resources to produce consumer goods (“butter”) and vice versa It’s a phrase expressing the idea that a country that decides to produce more military goods (“guns”) has fewer resources to produce consumer goods (“butter”) and vice versa What is the top 5 nations in spending for their military? What is the top 5 nations in spending for their military?

Top 5 Military spending #1 U.S.A. 515,400,000,000 #2 France 61,571,330,000 #3 China 59,000,000,000 #4 U.K. 53,148,770,000 #5 Germany 45,930,000,000

In the business world; Making the Decision? How do you know when to add or subtract from your business? How do you know when to add or subtract from your business? Can you keep up with demand with your customers (add)? Can you keep up with demand with your customers (add)? Are you losing money and need to cut back on workers (subtract)? Are you losing money and need to cut back on workers (subtract)? Are people not buying your product? Are people not buying your product?

This is called….. Thinking at the Margin: The process of deciding whether to use one additional unit of some resource In the business world, bosses or owners are faced with this question everyday.  Does McDonalds add business having a dollar menu?  Will the Vikings make more money with Brett Favre as their quarterback?

Case Applications The Efficiency Burger  The key to McDonalds’ method of hamburger production was specialization. The number of items that was on the menu was limited. This cut out food waste, so that hamburgers could be produced so easily and inexpensively that they could be sold profitably for 15 cents each.

Is Coal the Heir to the Energy Throne? Two serious environmental hazards of burning coal are acid rain and air pollution.  This had caused energy producers to shy away from coal and use petroleum. But recently, compared to the cost of petroleum, the cost per unit of energy produced by coal is about one fourth as much  With the addition of new pollution control techniques and the use of lower sulfur coal, coal is more in demand for energy producers. Europe has increased is demand for coal shipments from the US as well.

Section 3 Production Possibilities Curves is a graph which shows alternative ways to use an economy’s productive resources

Efficiency Its important in any business to be efficient. Efficiency is the use of resources in such a way to maximize the output of goods and services Its important in any business to be efficient. Efficiency is the use of resources in such a way to maximize the output of goods and services

Tomorrow we will be putting this to the test with ‘Thinking at the Margin’--- looking at benefits, costs, wastes in a business.  We will be splitting up into two teams (boys or girls)  This is the famous “Building of the Rings” competition which will go on the rest of the class hour.  Listen for directions from Mr. Makela tomorrow…  The girls have won 13 out of 18 times since I’ve been doing this  Winning team earns 10 points towards their Chapter 1 exam (extra credit)

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