09/29/091 EVERY CHOICE HAS A COST.

09/29/09Lesson 2: Cost2 Which are difficult economic decisions?  Preserve the desert tortoise or preserve the profits of a “greedy monopolistic land grabbing developer?”  Preserve the desert tortoise or the stock earnings of retired Mrs. McGillicudy who owns stock in the “greedy monopolistic land grabbing developer’s” company?  Preserve the desert tortoise or the Raven

09/29/09Lesson 2: Cost3 Difficult Decisions  Allocate Santa Catalina to Buffalo or native plants  Allocate San Clemente to the endangered Plover (bird) or land owners  Allocate Mojave to environmentalists or motorbikes  Northern forests to Spotted Owl or lumber and resulting jobs

09/29/09Lesson 2: Cost4 Easy or difficult  Easy decisions are between goods and bads.  Most decisions are between two goods.  In the political arena, the decision is often painted as good or bad, but that is not usually the case.

09/29/09Lesson 2: Cost5 OPPORTUNITY COST The Cost of a Choice  What will you (did you) give up?  Perhaps the most important concept in economics.  Things don’t have costs, choices do.

09/29/09Lesson 2: Cost6 The “free” tickets Alternative 1 Use the tickets yourself Alternative 2 Give the tickets to friends

09/29/09Lesson 2: Cost7 The “free” tickets Alternative 1 Use the tickets yourself Alternative 2 Give the tickets to friends CHOICEOPPORTUNITY COST

09/29/09Lesson 2: Cost8 The results of the decision  Choice: The subjective evaluation of the selected alternative  Opportunity cost: the subjective evaluation of the best alternative NOT selected not what COULD have been done but what WOULD have been done

09/29/09Lesson 2: Cost9 Some alternatives

09/29/09Lesson 2: Cost10 Narrow the alternatives to two

09/29/09Lesson 2: Cost11 Identify the choice and the opportunity cost CHOICE OPPORTUNITY COST

09/29/09Lesson 2: Cost12 How to best use their human capital on their 3 month anniversary?

09/29/09Lesson 2: Cost13 Some Alternatives

09/29/09Lesson 2: Cost14 Narrow it down to two

09/29/09Lesson 2: Cost15 Identify the Choice and the Opportunity Cost CHOICE OPPORTUNITY COST

09/29/09Lesson 2: Cost16 A “free” hike in the woods

09/29/09Lesson 2: Cost17 Other examples  Typing a term paper  “Free parking”  Resources for “free” early childhood education  Resources for national defense  Reduced class size  Wildlife habitats

09/29/09Lesson 2: Cost18 Preserving the environment is costly.

09/29/0919 Economic Decisions are made with incomplete information Expectations can be erroneous

09/29/09Lesson 2: Cost20 Money  A way of exchanging personal resources for goods and services You work at California Pizza You earn money You use money to buy goods and services You exchanged your human capital for goods and services that you desired

09/29/09Lesson 2: Cost21 Money is a tool for transferring resources and goods and services

09/29/09Lesson 2: Cost22 Money is a tool for transferring resources and goods and services

09/29/09Lesson 2: Cost23 Money is a tool for transferring resources and goods and services

09/29/09Lesson 2: Cost24 The Curse of the Crawling Camel  It is a mirage  There is no such thing as a free lunch!  There is really no such choice as a free choice!

09/29/0925 Stating that economic choices have an opportunity cost is the same thing as stating that scarce resources have alternative uses.

09/29/0926 Opportunity cost is the value of the best foregone alternative at the time that you make the decision.

09/29/09Lesson 2: Cost27 What does it cost you?  You have a scholarship for full tuition and all books.  There are no money costs to you.  Some say your education is free.

09/29/09Lesson 2: Cost28 If you can’t do it, it’s not opportunity cost!

09/29/09Lesson 2: Cost29 Opportunity cost is:  subjective  determined only by the decision-maker Why are you watching television, you could be outside on such a beautiful day? TV Video games Talking to your girl/boy friend

09/29/09Lesson 2: Cost30  natural resources  human capital  physical capital  entrepreneurship OR

09/29/09Lesson 2: Cost31 ECONOMICS  The study of individual choices concerning the use of limited resources among competing wants  Wants, resources, choices

09/29/09Lesson 2: Cost32 ECONOMICS  Economics can’t distinguish needs from wants – needs have no alternatives, therefore no choice, therefore no economics  In economics, people rank their wants according to their priorities.

09/29/0933 Why would an economist never say, “The best things in life are free?”

09/29/0934 Why would an economist never say, “We should preserve old growth forests at all costs?”

09/29/0935 An economist would never say, “If it saves one life, it’s worth it,” because it ignores the concept of ……………………….”

09/29/09Lesson 2: Cost36 Main Points  People choose because resources are limited and insufficient to fulfill their wants; people can’t have everything they want.  It is easier to choose between goods and “bads” than good and goods.  An economic decision involves using resources, goods or services  Every economic decision involves a cost. There is no such choice as a free choice.

09/29/09Lesson 2: Cost37 Main Points  Opportunity cost is subjective and can only be identified by the decision maker.  When people make a decision, they narrow the alternatives to two, select one (the choice) and give one up (the opportunity cost).  Economics is the study of individual choices concerning the use of limited resources among competing wants.

09/29/09Lesson 2: Cost38 Main Points  Money is a tool for transferring resources into goods and services or exchanging one good or service for another  Economics and finance are different. Economics is about resources; economic reasoning can be applied to finance.  In a study of economics, needs and wants can’t be distinguished. Economic reasoning ranks wants according to priorities.

09/29/09Lesson 2: Cost39