1. O PPORTUNITY COST

2. D EFINITIONS  Consequence – something that logically or naturally follows from an action or condition. For example, if you stay out past your curfew, you will be grounded.  Opportunity Cost – the best alternative that is forgone because a particular course of action is pursued. For example, buying an expensive iPod Nano means you'll have less money to spend on fun weekend activities.

3. D EFINITIONS  Trade-off – an exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable. For example, you want both a new outfit and a new and a class ring. You forgo the outfit for something that will last longer.  Decision-making – process by which consumers identify their needs, collect information, evaluate decisions and make or act on a decision. For example, you are going to purchase a car. First, list your needs (get to school, practice, must be safe, reliable, affordable, etc.); then you shop around (on Internet, in car dealerships, etc.); list the pros and cons to each car you find; buy your car. Explain how tradeoffs are associated with decision-making.

4. E XAMPLE 1 Tennis coach might videotape a tennis player's stroke and then study it frame by frame

5. J IM IS ABOUT TO PURCHASE A CD OF HIS FAVORITE SINGER  Benefit -- hours of pleasure from listening to them  Cost -- price tag it costs $15  Alternatives  Listen to radio  Download song  Borrow CD  Determine if the benefits exceed the cost

6. W OMAN WALKING ALONG THE STREET WHEN SHE SEES A $1 BILL ON THE SIDEWALK. S HOULD SHE PICK IT UP ?  Benefit -- $1 richer  Cost – 0 dollars  Alternative – What if the woman is Madonna, and she is hurrying to a recording studio where a symphony orchestra is waiting to perform with her  Determine if the benefits exceed the cost  Do something if it’s benefits outweigh its opportunity costs.

7. T O CALCULATE IT ASK YOURSELF THREE QUESTIONS 1. What alternative opportunities are there? 2. Which is the best of these alternative opportunities? 3. What would I gain if I selected my best alternative opportunity instead of the choice I'm considering?

8. J IM IS ABOUT TO PURCHASE A CD OF HIS FAVORITE SINGER  Benefit -- hours of pleasure from listening to them  Cost -- price tag it costs $15  Alternatives (other ways to spend the $15)  Sunglasses

9. CONSIDER A GOVERNMENT PROPOSAL TO BUILD A NEW DAM Here's how a poor decision-maker might view the problem  "If we build a dam, we'll have better flood control and cheaper electricity.  If we don't, then we'll experience occasional flooding, and electricity will be more expensive."

10. H ERE ' S ANOTHER WAY OF PRESENTING THE PROBLEM : "If we build the dam, it will provide us with flood control and cheaper electricity, but it will cost us $100 million."

11. H ERE ' S HOW AN ECONOMIST WOULD VIEW THE PROBLEM : "If we build the dam, we'll have flood control and cheaper electricity. But the $100 million to build the dam could be used instead to build two new high schools."

12. O PPORTUNITY C OST OF G OING TO A M OVIE  Time to do homework: 3 hours Gas and parking: $1.50 Admission to the theater: $2.00 _______________________________________  Opportunity Cost: 3 hours and $3.50