1. There is no such choice as a free choice
Opportunity Cost
There is no such choice
as a free choice

2. Objectives Define alternatives as different ways to achieve a goal
Identify the opportunity cost of choosing between alternatives

3. OPPORTUNITY COST The Cost of a Choice
Lesson 5: Opportunity Cost
OPPORTUNITY COST The Cost of a Choice
What will you (did you) give up when you made a decision?.
Things don’t have costs, choices do.
Perhaps the most important concept in economics
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4. A Truism
When people choose between two alter alternatives, they select one and give up the other.
Hamburger or Spicy Chicken?
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5. You want them both but can have only one.
You choose the spicy chicken.
The cost of the choice is the hamburger; you gave it up!
Hamburger or Spicy Chicken?
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6. Consumption Choices
Anytime you decide between consumer goods, you pay a cost --- the best alternative not selected.
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7. Using a resource
You are a high school principal and you have just hired a new social studies teacher who, you are sure, is VERY good.
For 3rd period, you can give him an AP Econ class or the rowdy government class which you are sure he could control.
You choose to give him the AP Econ class.
What is the choice?
What opportunity did you give up? What is the opportunity cost of your choice?
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8. Preserving the environment is costly.
Lesson 5: Opportunity Cost
Preserving the environment is costly.
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9. Using a Resource: Alaskan Land
What is your choice and what is the opportunity cost?
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10. How to best use their human capital on their 3 month anniversary?
Lesson 5: Opportunity Cost
How to best use their human capital on their 3 month anniversary?
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11. Lesson 5: Opportunity Cost
Some Alternatives
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12. Lesson 5: Opportunity Cost
Narrow it down to two
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13. Identify the Choice and the Opportunity Cost
Lesson 5: Opportunity Cost
Identify the Choice and the Opportunity Cost
OPPORTUNITY
COST
CHOICE
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14. A “free” hike in the woods
Lesson 5: Opportunity Cost
A “free” hike in the woods
Hike in the woods OR
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15. A friend has given you two “free” tickets to the 5th game of the 2013 World Series
There are no other tickets available at any price
This could be the Milwaukee Brewers first national championship
You and your best friend have grown up together suffering through the Brewers’ agony of defeat
Your wife has been a Brewers fan for years.
You can go with your wife or your best friend.
Is the choice to use the ticket “free?”
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16. Lesson 5: Opportunity Cost
The “free” tickets
Alternative
Your wife
Alternative
Your best friend
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17. Lesson 5: Opportunity Cost
The “free” tickets
Lesson 5: Opportunity Cost
Who do you choose? Who do you reject?
Who is your choice? Who is your opportunity cost?
Describe the opportunity cost? How will the reject treat you?
Alternative
Your wife
Alternative
Your best friend
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18. The results of the decision
Lesson 5: Opportunity Cost
The results of the decision
Choice: The subjective evaluation of the selected alternative
Opportunity cost: the subjective evaluation of the best alternative NOT selected
not what COULD have been done but what WOULD have been done
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19. Lesson 5: Opportunity Cost
Other examples
Typing a term paper
“Free parking”
Resources for “free” early childhood education
Resources for national defense
Reduced class size
Wildlife habitats
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20. Economic Decisions are made with incomplete information
Lesson 5: Opportunity Cost
Economic Decisions are made with incomplete information
Expectations can be erroneous
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21. The Curse of the Crawling Camel
Lesson 5: Opportunity Cost
The Curse of the Crawling Camel
Clyde holds the record
It’s past the record
He sees his salvation ahead
It is a mirage
There is no such thing as a free lunch!
Or, more precisely, there is no such choice as a free choice.
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22. Lesson 5: Opportunity Cost
Stating that economic choices have an opportunity cost is the same thing as stating that scarce resources have alternative uses.
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23. Opportunity cost is the value of the best foregone alternative
Lesson 5: Opportunity Cost
Opportunity cost is the value of the best foregone alternative
at the time that you make the decision.
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24. Lesson 5: Opportunity Cost
What does it cost you?
You have a scholarship for full tuition and all books.
There are no money costs to you.
Some say your education is free.
What would you be doing with your scarce human capital if you weren’t pursuing an education? That is the cost of your education.
Diploma
from
CSUSB
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25. There is no such choice as a free choice.

26. If you can’t do it, it’s not opportunity cost!
Lesson 5: Opportunity Cost
If you can’t do it, it’s not opportunity cost!
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27. Lesson 5: Opportunity Cost
Opportunity cost is:
subjective
determined only by the decision-maker
Why are you watching television, you could be outside on such a beautiful day? TV
Video games
Talking to your girl/boy friend
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28. To identify opportunity cost
What is the good or resource that is being used?
What were the two best alternative uses of the good or resource?
What was selected?
What was given up?

29. Lesson 5: Opportunity Cost
ECONOMICS
Individuals make decisions, not groups
Economics can’t distinguish needs from wants – needs have no alternatives, therefore no choice, therefore no economics
In economics, people rank their goals according to their priorities.
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30. Lesson 5: Opportunity Cost
ECONOMICS
The study of
individual choices
concerning the use of limited resources
among competing goals
Goals, resources, choices, costs
How do we best use our scarce resources to achieve our goals?
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31. Which of the following is an opportunity cost?
Lesson 5: Opportunity Cost
Which of the following is an opportunity cost?
a. A bad grade on a quiz because you didn’t study
Your mother’s hurt because you forgot her birthday
You Scum!
c. Not going out with your friends because you are called in to work.
d. All of the above are opportunity costs.
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32. Why would an economist never say, “The best things in life are free?”
Lesson 5: Opportunity Cost
Why would an economist never say, “The best things in life are free?”
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33. Lesson 5: Opportunity Cost
Why would an economist never say, “We should preserve old growth forests at all costs?”
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34. Lesson 5: Opportunity Cost
An economist would never say, “If it saves one life, it’s worth it,” because it ignores the concept of ……………………….”
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35. Lesson 5: Opportunity Cost
What does it cost you?
You were in love.
You have been married 30 years.
You are still in love.
What has it cost you?
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36. Lesson 5: Opportunity Cost
Main Points
People choose because resources are limited and insufficient to achieve all of their goals; people can’t have everything they want.
An economic decision involves using resources, goods or services
Every economic decision involves a cost. There is no such choice as a free choice.
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37. Lesson 5: Opportunity Cost
Main Points
Opportunity cost is subjective and can only be identified by the decision maker.
When people make a decision, they narrow the alternatives to two, select one (the choice) and give one up (the opportunity cost).
In a study of economics, needs and wants can’t be distinguished. Economic reasoning ranks goals according to priorities.
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38. Lesson 5: Opportunity Cost
The Best Things in Life
Are NOT
Free!
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