Bell Ringer What did you give up in order to come to school this morning? In other words, what else could you be doing with your time?

Objectives Explain why every decision involves trade-offs. Summarize the concept of opportunity cost. Describe what economist Milton Friedman meant when he said “There’s no such thing as a free lunch.”

Trade Off A trade off is an exchange for one thing in return for another. All decisions require trading one goal for another. Let’s say you’re going to go out on Friday night. You have lots of choices of what you can do…

Trade Off Go out with your friends. Stay home and watch TV. Go on a date. Review your economics notes. Go to a movie with your parents. All of these choices, except the one you choose, are your possible trade offs.

Go on a date. Trade Off What is one trade off of going on a date? Go out with your friends. Stay home and watch TV. Go on a date. Review your economics notes. Go to a movie with your parents. What is one trade off of going on a date?

Trade Off Go out with your friends. Stay home and watch TV. Go on a date. Review your economics notes. Go to a movie with your parents. Let’s say your second choice is to go out with your friends. If so, then this is the trade off of going on a date.

Go on a date. Opportunity Cost Go out with your friends. Stay home and watch TV. Go on a date. Review your economics notes. Go to a movie with your parents. In economics, we call the value of the next best alternative the opportunity cost.

Go on a date. Opportunity Cost Go out with your friends. Stay home and watch TV. Go on a date. Review your economics notes. Go to a movie with your parents. A simpler definition of opportunity cost is the cost of making a decision.

Go on a date. Opportunity Cost Go out with your friends. Stay home and watch TV. Go on a date. Review your economics notes. Go to a movie with your parents. You are giving up the chance to hang out with your friends in the hopes of at least getting the same value from going on your date in terms of excitement and camaraderie… if you know what I mean.

Opportunity Cost But what is the actual cost of going on your date? Remember that cost means more than just monetary cost!! With an elbow partner, come up with some other costs for choosing to go on a date instead of going out with your friends.

Opportunity Cost Monetary cost Time cost Social cost Emotional cost Health cost There’s no such thing as a free lunch!

Review A trade off is the thing(s) you give up to get one thing in return for another. An opportunity cost is the value or cost of this decision.

Review List five things that were a trade-off for coming to school today. For one of your trade-offs, identify the opportunity cost.

What trade-offs did the young man make that helped him get seniority? What was the opportunity cost?

Objectives Interpret a production possibilities curve. Explain how production possibilities curves show efficiency, growth, and cost. Describe the difference between “efficiency” and “underutilization”

Introduction How does a nation decide what and how to produce? “Guns or Butter” The idea that a country that decides to produce more military goods (“guns”) has fewer resources to produce consumer goods (“butter”), and vice versa.

Introduction How does a nation decide what and how to produce? To decide what and how to produce, economists use a tool known as a production possibilities curve. This curve helps a nation’s economists determine the alternative ways of using that nation’s resources.

Production Possibilities Economists often use graphs to analyze the choices and trade-offs that people make. A production possibilities curve is a graph that shows alternative ways to use an economy’s productive resources.

Production Possibilities Curve How many watermelons can the city produce if they are making 9 million pairs of shoes?

Law of Increasing Costs

Production Possibilities Curve Each point on the production possibilities curve represents a trade-off. Why are trade-offs necessary? Resources are limited; wants are unlimited!

Efficiency vs. Underutilization Efficiency is where an economy uses its resources in a way that maximizes the output of goods and services Underutilization is where an economy uses fewer resources than it is capable of using

Growth A production possibilities curve can also show growth: When an economy grows, the curve shifts to the right. However, when an economy’s production capacity decreases, the economy slows and the curve shifts to the left.

Letter e shows what the curve would look like if the economy grows/expands

Review National economies (and individual people) try to make the most of their available resources. Possibility production curves help us determine the point at which an economy is operating efficiently. When an economy utilizes its resources well, it is said to be efficient. If it does not, it can run the risk of underutilization.

Review Working with an elbow partner, come up with some examples of “guns or butter” decisions, either in your personal life or in the national economy.

Assignment Go to page 21 in the textbook. Working with a partner or on your own, read “Should the federal government spend money on space exploration?” Read the three documents at the top of the page and answer questions 1-3. Then, compose a paragraph (3-5 sentences) answering the following question: Should the federal government spend money on space exploration? Why/why not?