Econ “Economic Choice Today: Opportunity Cost” Unit 1, Chapter 1, Section 2

Objectives understand why choice is at the heart of economics explain how incentives and utility influence people’s economic choices consider the role of trade-offs and opportunity costs in making economic choices demonstrate how to do a cost-benefit analysis

Making Choices Factors that shape the economic choices people make: incentives: encouraging people to act in certain ways utility: satisfaction gained from using a good or service economize: decisions made according to costs & benefits trade-off: alternative given up by making an economic choice

economic choice trade-offs: choice alternatives: opportunity costs incentives: encourage a particular choice utility: benefit derived from that choice economizing; balancing costs and benefits of choice

Trade-Offs and Opportunity Cost Trade-offs: taking one course during the summer for extra college credit, then spending 4 weeks at the beach, instead of two courses during the summer for maximum extra college credits. Trade-offs? Opportunity cost: spending a year working, or 6 months working and 6 months travelling to see friends. Opportunity cost in each situation?

Analyzing Choices cost-benefit analysis: decision-making grid 1 hr. study(choice) = D in Econ (benefit) = 1 hr. with friends(O. Cost) 6 hrs. study = A in Econ = 6 hrs. with friends

Writing Focus Explain the relationship between: A: incentive and utility, and B: trade-off and opportunity cost