1. Opportunity Cost
Ch 1.2

2. Trade-offs:
all alternatives that we give up whenever we choose one course of action over another

3. Slumdog Millionaire Trade-off

4. Decisions
Every decision you, businesses, and governments make has trade-offs
Guns or butter: trade-offs nations face whether to produce more military or consumer goods

5. Safety
How important is safety to you and making decisions? Should individuals, businesses, and governments do whatever possible to ensure safety?
TSA, FDA, FFA

6. Opportunity Cost
most desirable alternative given up as a result of a decision
EXAMPLE - If you go to school you cannot sleep in, watch The Price is Right, play video games, or hang out with your cat.
If you were to not go to school what would you be doing?
Whatever your second choice is would be the opportunity cost

7. Externality
A consequence of an economic activity that is experienced by unrelated third parties.
Positive – Public Education Negative - Pollution

8. Free Rider Problem
Some individuals in a population either consume more than their fair share of a common resource, or pay less than their fair share of the cost of a common resource.
Examples – Evading taxes

9. Decision-Making Grid

10. Work vs Movie

11. THE MARGIN
deciding whether to do or use 1 additional unit of some resource
EXAMPLE: If you need to do 2 hours of HW, or you watch 2 hours of TV, you look at doing 1 hour of HW & 1 hour of TV
BASICALLY…you’re NOT taking an “all or nothing” approach to the decision

12. Cost & Benefit @ the Margin
you can figure out how to get some of both alternatives
Businesses & governments use this, too, to see what they can sacrifice and what they’ll gain
Once the opportunity cost outweighs the benefits, no more units should be added
Example of Cost Benefit Analysis in your life.
You want to skip Mrs. Hanko’s lecture on opportunity costs and go home. What would the benefits be? What about the costs/risks?
Which decision should you make based on the benefits/costs?