CHAPTER 1, SECTION 3- TRADE-OFFS & OPPORTUNITY COSTS ECONOMICS CHAPTER 1, SECTION 3- TRADE-OFFS & OPPORTUNITY COSTS

I. Trade-Offs & Opportunity Costs A. Definition of Trade-Off-A trade-off is the sacrifice of one good to purchase or produce another good. 1. Trade-offs must be made because when a resource is used to produce one good, that same resource cannot be used to produce another good.

I. Trade-Offs & Opportunity Costs B. Definition of Opportunity Cost-An opportunity cost is the value of the next best alternative that is given up when the trade-off is made.

II. Production Possibilities Curve A. Definition of PPC-The PPC is a graphic illustration of all the possible combinations of two goods or services that can be produced in a given period of time.

II. Production Possibilities Curve B. Assumptions: 1. The amount of available resources will not change during the given period of time. 2. All factors of production are being used in the most efficient manner possible.

C 5 G E 4 B P 3 Economy Cars (in millions) F D 2 1 A 1 2 3 4 5 Q Luxury Cars (in millions)

C 5 G E 4 B P 3 Economy Cars (in millions) F D 2 1 A 1 2 3 4 5 Q Luxury Cars (in millions)

II. Production Possibilities Curve C. Labels: 1. Inside-Inefficient use of resources. 2. Outside-Impossible production level. 3. On-Efficient production level.