1. Opportunity Cost
Decision making

2. Opportunity Cost
To an economist, cost is the cost of what you give up when one choice is made over another. This is known as “opportunity cost.”
This could mean money, time, or resources either now or in the future.

3. Opportunity Cost
The highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want
For example: My choice in lunch foods often involves opportunity cost. I can eat Aldi yogurt for 37 cents but I prefer Dannon or Yoplait for 50 cents for its taste. The true cost of my name-brand Yogurt is the Aldi yogurt plus the 13 cents I saved. 21

4. Opportunity Cost Example
For example, if you are given $20 and you choose to go to the movies and spend that $20. Your Opportunity Cost would be everything else that you could’ve done with that $20… like
Buy candy
Buy McDonalds
Save the money

5. Opportunity Cost Questions
What is the opportunity cost of attending this economics class?
What is the opportunity cost of attending a concert by your favorite band?
What is the opportunity cost of increasing research for an AIDS vaccine? 22

6. Opportunity Cost Video
First minute-ish

7. Opportunity Cost
Create your own example of opportunity cost.

8. Incentives
Incentives are methods used to encourage people to take certain actions.
They can also be benefits offered to encourage people to act in certain ways.
Grades in school, Wages, Praise/Recognition, etc.

9. Examples of Incentives
Grades in school
Wages paid to workers
Praise and recognition

10. Cost-benefit analysis- is an approach that weighs the benefits of an action against its costs.
Economize- To make decisions according to the best combination of costs and benefits.

11. Trade-Off
Is the alternative option people give up when they make choices.
Usually trade-offs do not require all-or-nothing choices.

12. Trade-off/Opportunity Cost Example
Timmy is failing Economics. He has an Economics test next Monday.
He hasn’t gone to tutorials after school because he’s been hanging out with his girl, Cindy, instead.

13. Trade-off/Opportunity Cost Example
Timmy has 6 hours of “free time” after school every day this week.

14. Timmy and his decisions…
Timmy has to make decisions according to the best combination of costs and benefits. In other words, Timmy has to _________.

15. Timmy’s Cost-benefit Analysis
If Timmy chooses to study instead of hang out with Cindy, he’ll pass the test.
If Timmy doesn’t hang out with Cindy, she’ll talk to someone else instead.

16. Timmy’s Cost-benefit Analysis continued…
If Timmy chooses not to study, he’ll fail the test.
If Timmy chooses to hang out with Cindy, she’ll stay with him.

17. Incentives?
What is Timmy’s incentive for studying?
What is Timmy’s incentive for hanging out with Cindy?

18. Opportunity Cost?
If Timmy chooses to hang out with Cindy, what would be the opportunity cost?

19. What would be an example of a trade-off?
Trade-off example
What would be an example of a trade-off?

20. Decision Making Grid Pg15.
What is Max’s opportunity cost of 3 extra hours of study?
Read the information about marginal costs on pg16. What would be Max’s marginal cost of moving from a grade of B+ to A-?

22. After high school decision making grid
Copy down the decision making grid in your notes.
Public schools vs. Private schools?
$ and Class size

23. Make your own…
Make your own decision making grid based on classes you want to take in college…

24. Underutilization- Means producing fewer goods and services than possible.
Efficiency- Involves producing the maximum amount of goods and services possible.

25. How to represent opportunity cost?
The production possibilities curve (PPC) represents all possible maximum combinations of total output that could be produced.
This is going to be our first encounter with an economic graph. This is a pretty basic graph, and if you’re having a tough time with these graphs, ask one of your more spatial classmates for assistance to understand them. 27

26. PPC - Studying
The trade-offs showcase how there are possibilities and varying “production” possibilities. In this case, there is a direct trade off between studying for economics and mathematics. Sometimes this is called a Production Possibilities frontier, as the border represents things that are possible and there is a limit to the amount of resources or studying in this example.

27. Production Possibilities Table
Pg. 19
If you decided to make 35 muffins, how many loaves of bread could you make?
What is the opportunity cost of making the 7 loaves of bread?

30. Guns vs. Butter
“Guns vs. Butter” was a major issue during the presidency of Lyndon B. Johnson in the 1960s. “Great Society” program called for a “war on poverty.” This required the government funding of many social reforms.
An expanding war in Vietnam saw these government funds being switched from domestic programs, “butter”, to defense spending, “guns”.
The opportunity cost of increasing defense production was that the social programs could not be funded.

31. PPC: Guns vs. Butter Copy figure 1.5 in your notes.
What do the “guns” represent?
What does the “butter” represent?