OPPORTUNITY COST Would you like to go on vacation? Consider the choices on the next slide:

PICK 1 OF THESE 5 DESTINATIONS Maui, Hawaii Vail, Colorado New York City London Paris

Explain why you picked your choice What did you pass up by choosing your vacation over the others?

Choices… In this section you will learn about trade-offs, what economists call opportunity cost.

We all make choices and trade-offs… Trade-offs are the alternatives we give up whenever we choose one course of action over another.

People make trade offs Should I go to the movies with my friends or should I do my Economics homework? If I do my Eco homework, what is my benefit and loss? If I go see the new movie, what is my benefit and loss?

Businesses make trade-offs Businesses make trade-offs regarding land, labor and capital everyday. A farmer who plants broccoli can not use the same space to plant cauliflower. A factory that uses all of its machines to make chairs can’t make tables.

Countries make trade-offs Economists often call this “guns or butter”. A country that uses most of it’s resources for military goods can’t use them for consumer goods! During WWII, the US needed copper for munitions, so pennies were made from steel, not copper. (A trade-off)

An unusual trade off “Guns and butter” also affected women’s fashion during World War II. Silk was used for parachutes and was not available for the fashion industry. As a result, there was a shortage of silk stockings during World War II. Some women actually drew a seam with a makeup pencil on the back of their legs, to make it look like they were wearing stockings!

A military trade-off (guns vs. guns) Because so many U.S. troops are in Afghanistan, they aren’t available to be sent to South Korea, where there is a threat of nuclear weapons use or production from communist North Korea. Instead of considering an invasion the US has been negotiating with North Korea.

Thinking at the margin Economists consider what would happen if they add or subtract one unit (for example, one employee or one dollar). If a store adds one cashier, what is the benefit? What could be the loss? This consideration is called making a decision at the margin.