Today’s DOA Why is it important to evaluate trade-offs and opportunity cost when making choices?

Understanding Economics Production Possibilities

What is Economics? REMEMBER… Economics is the study of how people try satisfy their own needs/wants through the careful use of scarce resources.

Opportunity Cost REMEMBER… Provides: Opportunity cost is the cost of the next best alternative use of money, time, or resources when one choice is made rather than another. Provides: The chance to do something Is of value Value of the next best alternative Forces us to evaluate each alternative

Thinking Rationally What is a decision? What does rational mean? A choice that is made. What does rational mean? Using reasoning and logic. What is a rational decision? A choice that is made using reasoning and logic.

Cost vs. Benefit When we are making decisions we look at the cost versus the benefit of that decision. Weigh the cost. Look at the benefit. When making a rational decision… BENEFIT > COST

Production Possibilities What is production? Produce, make, create Refers to the process of creating goods/services. What are possibilities? Chances Options Choices Production Possibilities refers to all chances to create a good or service.

Production Possibilities As we take a look at production possibilities we are going to look at the following: Production Possibilities Frontier Production Possibilities Curve Alternative Possibilities Maximizing Possibilities Economic Growth Opportunity Cost

Production Possibilities Frontier Also known as the Production Possibilities Curve, the PPF is a curve depicting all maximum outputs for two or more goods. Guns vs. Butter Where would the most efficient production be?

Production Possibilities Frontier Representation of potential output at a given point in time. All models, such as this, are theories based on assumptions.

Production Possibilities Frontier Alternative Possibilities All points on and inside the curve. Points – A, B, C

Production Possibilities Frontier Maximizing Possibilities All points on the curve. Points – A, B

Production Possibilities Frontier Economic Growth Any point outside the curve represents the potential for economic growth. Point – D

Production Possibilities Frontier Opportunity Cost Movement on the curve from one point to an alternative point. A  B ↓5 coconuts ↑10 fish B  A ↑5 coconuts ↓10 fish

Exit Slip Identify the following: Alternative Possibilities Maximizing Possibilities Economics Growth Opportunity Cost E  F