1. Intro to Economics Part II: Decision Making
Mr. Edwards
SAHS

2. Economics asks three basic questions:
Economic Questions
Economics asks three basic questions:
What is produced?
How is it produced?
For whom is it produced?

3. How do we make choices?
Individuals, families, and nations all play a part in answering economic questions.

4. How do we make choices?
Decisions are made by looking at marginal cost and marginal benefit
Marginal cost: the total cost of adding one unit of production
Marginal benefit: the benefit gained from adding one unit of production

5. Marginal Cost Least amount that any product/decision is worth
You have two hours. You spend the first hour watching TV, but you need to study. Marginal cost is the time given up studying to watch TV.

6. Marginal Benefit
Satisfaction or benefit gained from any economic decision.
If you watch TV instead of studying, the marginal benefit is the enjoyment you get from watching TV.

7. Decision Making
When making a decision, marginal benefit should outweigh marginal cost for the decision maker.

8. Trade-Offs Decisions an individual must make to deal with scarcity
You have $50. If you buy a $50 pair of jeans, you have no money left for groceries.

9. Opportunity Cost
The total cost of the next best choice when making a decision.
By buying the jeans, the opportunity to buy groceries is no longer there.

10. There once was a student who really liked cookies
There once was a student who really liked cookies. During lunch, the cafeteria ran out of cookies and the student was dejected. She went to her next class, during which she somehow found out the cafeteria had more cookies. The student told her teacher she was going to the cafeteria to get a cookie, to which the teacher replied, “No you’re not.” The teacher told her that if she left the class to go get a cookie, she would be written up. She took a moment to ponder the situation and promptly left to get some cookies.

11. Production Possibilities Curve
The PPC is a way of visually representing opportunity cost and trade-offs.
It shows what can be produced with available resources

12. Production Possibilities Curve
Points A, B, &C show full use of resources
Point X fails to use all resources
Point Y is unattainable
Product 2
Product 1

13. Production Possibilities Curve
If we decide to increase product 1 from point C to point B, the opportunity cost of product 2 is the space between M & N.
Product 2
Product 1 N M