1. ECON 101.3 Opportunity Cost Objectives: 1.Why is sacrifice an important element in economic choice 2.What assumptions are involved in creating a production possibilities curve 3. Why might future production possibilities differ from current production possibilities

2. Economic 101.3 Dictionary  Trade-off  Opportunity Costs  Production Possibilities Curve

3. Trade-Offs and Opportunity Costs  In any economic system, choices have to be made. With a limited amount of resources, not all needs can be met.  When you sacrifice one product or service for another, that is a trade-off  The cost of the trade-off – the value of the next best alternative is the opportunity cost.  Basically it is the thing you don’t get.

4. Perhaps you need an example. It is long but it will help Perhaps you need an example. It is long but it will help  You have 2 events that you would like to attend. Tickets for both events cost roughly the same amount, unfortunately you only have enough money for one. You must make a trade-off because you cannot afford both.  If you spend the money on event A. Event A becomes the opportunity cost of not going to event B

5. How about a real life example? YOU MAY NOW LOOK AT THE DECISION MAKING GRID TO YOU LEFT.

6. Questions????????  You have $10 left from your allowance.  Based on the decision making grid:  1. What is the best choice for a Friday night activity?  2. What are the trade-offs?  3. What is the opportunity cost?

7. How about something a little harder?  Think of some environmental issues that are effecting our nation today.  What are the possible causes of these issues?  What benefits did people hope to gain through the actions and decisions that ultimately hurt the environment?  Do you think the benefits or gains have been worth the environmental cost?  How does this relate to economic decisions either macro or micro?

8. Production Possibilities  A production possibilities curve shows all of the possible combinations of two goods or services that can be produced within a stated time period given 2 assumptions.  #1 it is assumed that the amount of resources and technology will not change over the time period  #2 it is assumed all the resources are being used in the most efficient manner possible

9. What do the assumptions mean?  All the combinations on the curve meet the given assumptions.  Combinations that lie inside the curve represent inefficient use of existing resources  Combinations that fall outside the curve represent production impossibilities.

10. PLEASE LOOK AT THE GRAPH BEHIND THE SCREEN

11. What does the graph mean  Point A. Only luxury cars  Point E. Only economy cars  Points B,C and D. a mix of luxury and economy cars  Point G. ?????????????  Point F. ?????????????

12. The Future Production Possibility Curve  The curve can shift to the right with the development of future technology or new resources are found.  What is the effect on production?  What conditions could cause the curve to shift to the left?