Opportunity Cost & Guns and Butter (Yeah, Guns and butter)

LEARNING TARGETS To understand and define the concept of “opportunity costs”, and give real-world examples. To understand and be able to draw a 2-component Production Possibilities Frontier graph.

Why doesn’t that lawyer answer his own phones?

Opportunity Cost What is given up?

An example: Saving the cat “cost” Superman the “opportunity” to…

OPPORTUNITY COSTS DEFINITION “The most highly valued opportunity or alternative given up when a choice is made.”

WITH YOUR TABLE PARTNER What are some examples of opportunity costs in your own life involving: *Money *Time *Relationships

If we have to make choices, let’s looks at a simple model: Guns v. Butter. Started in WW 2 “Guns” = Military “Butter” = Non-military SPENDING.

Where should a country spend its scarce resources?

Production Possibilities Frontier Guns It all available resources were devoted to butter we’d be at… Butter

Production Possibilities Frontier So that means that this point is… Guns Butter

Production Possibilities Frontier What might this spot represent? Guns This point represents an inefficient use of resources Butter

Production Possibilities Frontier And this.. Guns This in unattainable Unless… Butter

Production Possibilities Frontier …The curve moves. Guns Butter

Production Possibilities Frontier …The curve moves. Guns Butter

Production Possibilities Frontier …The curve moves. Guns How could this happen? Butter