1. Opportunity Cost and Production Possibilities Curves

2. Choose one of the following vacation spots & explain your choice. Top 10 Vacation Spots 2011

3. We are spoiled with SOOO many choices! What is your fave?

4. What is missing???

5. Trade-Offs Trade-Offs: Giving up one or more things by choosing another – Individual Work vs Movie – Business Cars vs Umbrellas or Shoes – Society Guns or Butter

6. Opportunity Cost Opportunity Cost: The most desirable alternative given up by making a decision By choosing one, we have an opportunity cost equal to the other. VS.

7. Opportunity Cost (cont) Thinking at the Margin – Many decisions do not have to be an “All or Nothing” choice. – Thinking at the Margin is deciding item by item or unit by unit – Instead of “do I want to make Umbrellas or Potatoes”, it is “how many Umbrellas and how many Potatoes do I want to make?”

8. Opportunity Cost (cont) Thinking at the Margin – when you make a decision, most people think on the margin. – Meaning they think about the positive and negative benefits of making one decision rather than another.

9. Opportunity Costs…READ slowly. People make decision based on comparisons and choose what is just a little bit better. For example if you like both hot dogs and ice cream cones but can afford only 3 things you will buy one of each, but the decision of which to buy for your third item will be made at the margin or which you like just a little better. When firms decide to hire one more worker it is also a decision at the margin based on whether it will produce a small increase or decrease in profitability.

10. The Golden Rule…READ Slowly. – In economics the Golden Rule is that you should keep adding more of something as long as marginal benefit is greater than marginal cost. In other words, if hiring another worker brings in more revenue than the worker’s wage, you should hire them. Similarly, if buying more of a resource increases revenue more than the cost of that resource, you should but it. Example: You sell T-shirts for $3 each and pay your employees $10 an hour. – If you hire another employee production increases by 5 t-shirts an hour. Do you hire them? – The next employee increases production by 4. Do you hire them? – The next employee increases production by 3. Do you hire them?

11. Production Possibilities Curve Shows alternate ways to use resources in the production of two goods or services (BOOK!)

13. Production Possibilities Curve (cont) The line on the graph is called the Production Possibilities Frontier Each point reflects a trade-off

14. Efficiency, Growth and Cost Efficiency: The Production Possibilities Frontier assumes that you are working at 100% efficiency. Underutilization: All points under the line Question: Why would you ever have a situation in which underutilization occurred?

15. Efficiency, Growth and Cost Growth: shown by a new line “shifted to the right”. 2 ways to shift: 1- more resources 2 – more technology

16. Efficiency, Growth and Cost Cost: the alternative we give up when we choose one thing over another. Question: Looking at the graph. If you decided to change from making 4 million tons of potatoes to 10 million tons, what would be the cost? Question: What if you were changing from making 19 million to 20 million?

17. Efficiency, Growth and Cost: Getting LESS of a good thing. Law of Increasing Cost: – A.K.A. the Law of Diminishing Returns – When switching production from one item to another, as you increase, a higher rate of cost will be necessary to continue increasing. – What the heck Ms. Blackmon? Can you say that another way, because that last sentence makes no sense..

18. Last But Not Least The Law of Increasing Cost applies to all production. It also applies to all resources. Even Money. Remember, this graph only applies to one specific producer. Thus, the costs are not the same from person to person, or country to country.

19. Efficiency, Growth and Cost Law of Increasing Cost (cont) – To help you out, think of it in terms of cooks making muffins in one kitchen.

20. How does one element of the economy affect others? Oil? Happy Meals? GTL? Can You Have Whatever You Like? What is important to you?

21. Review USATestPrep Quizlet Review Economic Principles Game