1 1.3 Opportunity Cost and Choice

2 Opportunity Cost 1.Overview: Because of scarcity, whenever you make a choice you must pass up another opportunity. 2.The opportunity cost of the chosen item or activity is the value of the best alternative you must pass up. 3.Opportunity costs depends on your alternatives. 4.Opportunity cost is a personal thing but in some cases, estimating a dollar cost for goods and services may work and be helpful in choosing. 5.In other cases, the dollar cost may omit some important elements, particularly the value of time involved.

3 Choosing Among Alternatives 6.Economics assumes that your rational self-interest will lead you to select the most valued alternative. 7.Time is the ultimate limitation. 8.Sunk cost is the cost that you have already incurred and cannot recover, regardless of what you do now.

4 Understanding Cause and Effects of Economics 9.Economic events don’t just happen. 10.They almost always result from other things that happened first. 11.One of the best ways to understand an economic event is to look at the factors that caused it to take place. 12.An important benefit of learning about past economic events is the insight you will gain into what might happen if similar events take place in the future.

5 The Opportunity Cost of College “On average, college graduates earn about twice as much as high school graduates.” -W. McEachern ‘08

6 Homework 2 vocabulary words to look up and write Key Concepts: – Questions # 1 - 5

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