Section 2: Trade-Offs Economics Chapter One

Trade-Offs Exchanging one thing for the use of another is called a trade-off.

The Cost of Trade-Offs The result of a trade-off is what you give up in order to get or do something else. There is a cost involved in the trade-off– it is called opportunity cost. Ex- Maybe you have a job, and maybe that job requires you to work at night. What if you have an economics test on Friday, but the boss asks you to work Thursday night? You must choose. If you choose to work, you are trading off your chance at a good grade (the opportunity cost), but if you decide to study, you are trading off a night’s wages (the opportunity cost).

Considering Opportunity Costs Before you make any economic decisions, you must know and evaluate the trade-off you are about to make and the resulting opportunity cost. The trade-off is the choice you make; the opportunity cost is the next best alternative that you are giving up when you make that choice.)

Federal Govt. and Opportunity Cost The Congress always has to make choices about how to best spend the tax revenue the government collects. Congress must way the opportunity costs of the trade-off they make. Ex- If Congress votes to spend $220 Billion on building new highways, that means that there is $220 Billion fewer dollars to spend on other projects, i.e. schools, hospitals, etc.

Production Possibilities Curve Graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period Ex- You have 20 hours to make as much jewelry as possible with 60 ounces of silver and a cup of beads. The table below represents what you can make and what you trade off.

Pairs of earrings # of bracelets 5 4 2 3 6 1 8 10

The Classic Example Refers to the dilemma of the federal government. How much to spend on military defense and how much to spend on civilian goods. It’s commonly referred to as Guns v Butter

Trade-Off in Amazon Today- Opportunity Cost May Be Future An area = to 5,ooo soccer fields is being destroyed in the Amazon everyday. The land is cleared to grow crops to sell for a profit. The wood is used to make hardwood floors to export all over the world. Should we be worried?

How can a trade-off you make today affect your future? What trade-offs do you see yourself having to make in the near future?