1. Section 2: Opportunity Cost

2. Trade-Off  The ACT of giving up one thing to get another thing  You can’t have your cake and eat it, too!

3. Trade-Offs  Individual Trade-offs BUY SAVE THIS THAT

4. Trade-Offs  Business Trade-offs

5. Trade-Offs  Government Trade-offs Guns (military spending) Butter (spending on the people)

6. Opportunity Costs  Just wait, it’s not so simple ….. There are often SEVERAL choices which need to be sacrificed with trade-offs. ○ Some are so ridiculous that it’s easy to drop them

7. Opportunity Costs But some choices are harder to make because the goods or services are good alternatives! Opportunity Cost is the BEST thing which you have to give up in a trade-off

8. Decision Making Grids  Opportunity Cost Grid Alternatives Sleep LateWake up Early to Study Benefits Gotten  Enjoy sleeping  Have more energy during the day  Better grade on the test  Teacher and parental approval  Personal satisfaction Benefits Missed  Better grade on the test  Teacher and parental approval  Personal satisfaction  Enjoy sleeping  Have more energy during the day Opportunity Cost (What GOOD alternative did you give up in order to get this?) Extra time to studyExtra time to sleep

9. THINK ABOUT IT  Please respond to the prompt in your packet

10. Thinking at the Margin  More realistic approach Not a simple ○ “either/or” choice ○ “black/white” choice Many shades of gray Include little increments

11. Thinking at the Margin  At the WHAT? Think this way … This paper is using NO margins. The writing takes the ENTIRE page from left to right. It looks kind of funny because we are used to seeing a margin on both sides of the paper. But this is an ALL or NOTHING world. It’s all writing and no margin. This paper is using small margins. The writing takes up most of the page from left to right. It looks more normal because we are used to seeing a margin on both sides of the paper. This is a case where we have some margins. This paper is using even larger margins. The blank part takes almost all of the page from left to right. We moved the margins just a bit more. In this case, might it be too much?

12. Decision Making Grids  Cost/Benefit Analysis A way (process) to look at what is lost versus what is gained. ○ Opportunity COSTS ○ Opportunity BENEFITS

13. Decision Making Grids  Cost/Benefit Analysis Includes MARGINAL COSTS ○ What positive opportunities are lost with each increment (portion) of a sacrifice? ○ It’s PORTIONS not “All or Nothing” Includes MARGINAL BENEFITS ○ What positive opportunities are gained with each increment (portion) of a sacrifice? ○ It’s PORTIONS not “All or Nothing”

14. Decision Making Grids  A POSITIVE Choice is obvious as long as the marginal benefits are greater than the marginal costs! OptionCostBenefit Is it worth the extra Cost to get the extra Benefit? Get ONE extra hour of study time One hour of sleepGrade goes up to a CYes Get TWO extra hours of study time Two hours of sleepGrade goes up to a BYes Get THREE extra hours of study time Three hours of sleep Grade goes up to a B+ No

15. Think About It  Please respond to the prompt in your packet