1. Economic Choices and Decision Making
Ch. 1 Section 3
Economic Choices and Decision Making

2. Objectives Analyze trade-offs and opportunity costs
Explain decision making strategies

3. Vocab Trade-off Opportunity cost Production possibilities frontier
Cost-benefit analysis
Free enterprise economy
Standard of living

4. Intro Process of making choices isn’t always easy
Ex. Prom dress shopping
Consumers must make wise choices because of scarcity
Best decision makers are good at identifying the problem and analyzing the alternatives
Finally, you have to carefully consider costs and benefits of each choice

5. Trade-Offs and Opportunity Cost
Every decision has a trade-off
Trade-off-alternative choice
Charts can be used to help make the decision between choices
Or pro con list

7. Economists instead think broadly in terms of opportunity costs
Cost isn’t just $
Economists instead think broadly in terms of opportunity costs
Opportunity costs – cost of the next best alternative use of money, time, or resources

8. Production Possibilities
To illustrate opportunity costs, we use production possibilities frontier
A diagram that shows the combinations of goods and/or services that can be produced when all productive resources are used
If a country can identify possible alternatives, it allows them to examine how it can best put its limited resources into production

9. 1) Considering different ways to fully employ its resources allows an economy to analyze the combination of goods and services that leads to maximum output. 
2) An economy pays a high cost if any of it resources are idle. It cannot produce on its frontier and it will fail to reach its full production potential. 
3) Economic growth made possible by more resources, a larger labor force, or increased productivity causes a new frontier for the economy.

10. Thinking like an Economist
Economists build simple models to help analyze or describe actual economic systems
Economic models- simplified equation, graph, or figure showing how something works
Ex. Circular flow diagram, production possibilities frontier
Based on assumptions

11. Most economic decisions can be evaluated by a cost-benefit analysis
cost benefit analysis- a way of thinking about a choice that compares the cost to its benefit

12. The Road Ahead
Studying economics paves the road ahead of us because it helps us to understand how the economy works on a daily basis
Specifically in a free enterprise economy
Free enterprise economy- people and privately owned businesses make majority of the economic decisions not the government

13. Understanding the economy is all about helping us make better decisions to improve our standard of living
Standard of living- quality of life based on ownership of necessitates and luxuries that make life easier