1. Trade-offs and Opportunity Costs
Econ Ch. 1 Section 2
Trade-offs and Opportunity Costs
Goals:
1. Explain why every decision involves a trade-off.
2. Define “opportunity costs”.
3. Explain “Thinking at the Margin”.

2. OR you could buy a ticket online instantly for $25.
Let’s say your favorite band is going to perform here in Milwaukee.
You can buy a ticket in person for $10, but you have to stand in a long line for 2-3 hours
OR you could buy a ticket online instantly for $25.
Which would you choose?

3. Trade-offs
The alternative (s) that is given up when an economic choice is made.
Money or Time
Watch TV or Play Soccer
Harvard or Yale
Crops or Cattle
Guns or Butter*
Resources are scarce and people have limited time.
People decide every day what is more important and what can be sacrificed
Looking at Warm-up: Choices #2-5 were the trade offs for deciding on #1, the decision to buy it meant giving up the others.

4. Opportunity Cost
The 2nd most desirable choice given up in order to have the 1st choice.
Dinner choices: Pizza, Sub or Chicken
This could change depending on the situation:
Sleep late or skip breakfast
Sleep late or study for a test
Sleep late or get Superbowl tix
Thinking about what we will have to give up helps us
determine if the decision is worth the cost.
Warm-up: Your #2 choice was the opportunity cost of choosing #1. #2 was probably harder to give up than #5 because it was worth more to you.

5. Sleep late or study for a test?
What if it is not just an either/or?
Sleep late or study for a test?
You could change it from an either/or to a combination of the two by looking at it an hour at a time.
I could get up one hour early so that I could study one hour more.
I could get up two hours early so that I could study for two hours.
Thinking at the Margins- deciding whether or not to do something by looking at the benefits one unit at a time i.e. hours, dollars, workers

6. VALUE = Utility + Scarcity
Thinking at the Margins
Sleep late or study for a test?
What do you notice about the jumps between benefits and opportunity cost?
Which option gives you the best value for your lost sleep time?
VALUE = Utility + Scarcity

7. Monty Python & Marginal Utility

8. Goal Check Why does every economic decision involve a trade-off?
Define opportunity cost.
Explain “Thinking at the Margins”