1.2 Opportunity Cost Essential Question: How do we make decisions incorporating tradeoffs and opportunity costs in our daily lives?

Economic Choice Incentives: Encourage a particular choice Utility: benefit (satisfaction) derived from that choice Economizing: Balancing costs and benefits of choice Trade-offs: choice alternatives; opportunity costs

Opportunity Cost “It’s much easier for me to make major life, multi-million dollar decisions, than it is to decide on a carpet for my front porch.” ~ Oprah Winfrey What makes some decisions easy and some more difficult?

Cost – Benefit Analysis MoneyTimeWhere will I live? Family/ Friends Goals (Long term/ Short term) Work Full Time 2-yr College (Full time) 4-yr College (Full time) Work part- time; School part-time

Cost – Benefit Analysis Write a paragraph in which you analyze your data from your decision-making grid. Include the following – Write one or two sentences that summarize the trade-offs you will have to make as you consider what you will do after high school. – Write one or two sentences that describes your opportunity cost. – Write a concluding sentence or two stating your decision.

Discussion What incentives and utility did you consider in making your decision? How does your choice represent the best mix of costs and benefits for you? How does this exercise represent the idea that there is “no such thing as a free lunch”?

Marginal Cost (how much would it cost you to get the next degree?) Marginal Benefit (How much satisfaction would you receive by adding an additional degree?) High School diploma$668/week Training Program (1-year or less) $741/weekEst. $1,500- $3,000 2-year degree (Associate’s)$792/week3, year degree (Bachelor’s)$1,101/week9,139 Master’s degree (typically 2 years past Bachelor’s) $1,326/week 15,000 (based on 30 credit hours at $500/credit hour) Doctoral/Professional (at least 8 years total) $1,600/weekEst. 45,000 (from Capella) Marginal cost and benefit from adding more education