Random FACTS of the Day ► "Thirty-four percent of the adult population (18 and over) had degrees or certificates above the high school level in 2001." ► Sixteen percent have bachelor's degrees. (undergraduate, four-year program) ► Seven percent have associate's degrees (two-year program of study) ► Sixteen percent have less than a high school diploma. ► Average monthly earnings of full-time workers with a professional degree = approximately $8,000. ► Average monthly earnings of full-time workers with a professional degree = approximately $8,000. ► Average monthly earnings of full-time workers who did not complete high school = $2,000 per month. ► Average monthly earnings of full-time workers who did not complete high school = $2,000 per month.

Chapter 18, Section 2 Making Economic Decisions

Main Idea ► Trade-offs are present any time a choice is made!!!

I. Trade-Offs A. Economic decision making requires that we take into account all the costs and all the benefits of an action. B. Trade-Offs- Exchanging one thing for the use of another. ***Ex: When you buy a product, you exchange money for the right to own that product rather than something else you could have at the same price. ***

***People, businesses, and societies make trade-offs every time they choose to use their resources in one way and not another.*** ***Ex: More money spent on education means less money for defense and research!***

C. Opportunity Cost- what you can’t buy or do when you choose to do or buy something else. Ex: If you buy a brand new car and pay $950 a month you cannot afford to buy a brand new boat at $1200 a month. OR

D. Opportunity cost includes more than just money. It includes discomforts and inconveniences linked to the choice made. Ex: If you decide you are going to clean your house, not only do you have to spend money to buy the products to clean your house, but you are spending time cleaning when you could be doing something else, like going to the beach!

E. All businesses have fixed and variable costs. F. Fixed Costs: Always the same 1. Rent = 650 per month G. Variable Costs: Expenses that change 1. Electricity= $200, $303 Etc.. 2. Water = $55, $45 Etc…

H. Fixed costs + Variable Costs = Total Costs *** To find average total cost, divide the total cost by the quantity of the product. Total Cost- $4,000 Staplers Made- 1,000 Average Cost- $4 each

I. Marginal Cost- Extra cost of producing one additional unit of output. ***If it costs $500 to add a headrest dvd player to your new vehicle the marginal cost is.

***Businesses measure the total revenue and marginal revenue to decide how much of output will create the greatest profits*** J. Marginal Benefit- The additional benefit associated with an action.

II. Cost Benefit Analysis A. Cost Benefit Analysis- Economic model used to compare marginal costs and marginal benefits of a decision. ***You should choose an action where the benefits are greater than the costs*** Page 413!

Mini Quiz!!! Edwin Starr- War 1. Give an example of a fixed cost. 2. Give an example of a variable cost. 3. Create an example of a trade-off. 4. Create an example of opportunity cost.