1. Opportunity Cost & Guns and Butter
(Yeah, Guns and butter)

2. LEARNING TARGETS
To understand and define the concept of “opportunity costs”, and give real-world examples.
To understand and be able to draw
a 2-component Production
Possibilities Frontier graph.

3. Why doesn’t that lawyer answer his own phones?

4. Opportunity Cost
What is given up?

5. An example:
Saving the cat “cost” Superman the “opportunity” to…

6. OPPORTUNITY COSTS DEFINITION
“The most highly valued opportunity or alternative given up when a choice is made.”

7. WITH YOUR TABLE PARTNER
What are some examples of opportunity costs in your own life involving:
*Money *Time
*Relationships

8. If we have to make choices, let’s looks at a simple model:
Guns v. Butter.
Started in WW 2
“Guns” = Military
“Butter” =
Non-military
SPENDING.

9. Where should a country spend its scarce resources?

10. Production Possibilities Frontier
Guns
It all available resources were devoted to
butter we’d be at…
Butter

11. Production Possibilities Frontier
So that means that this point is…
Guns
Butter

12. Production Possibilities Frontier
What might this spot represent?
Guns
This point represents an inefficient
use of resources
Butter

13. Production Possibilities Frontier
And this..
Guns
This in unattainable
Unless…
Butter

14. Production Possibilities Frontier
…The curve moves.
Guns
Butter

15. Production Possibilities Frontier
…The curve moves.
Guns
Butter

16. Production Possibilities Frontier
…The curve moves.
Guns
How could this happen?
Butter