2. Opportunity Cost
To an economist, cost is the cost
of what you give up when one
choice is made over another.
This is known as “opportunity
cost.”
This could mean money, time, or
resources either now or in the
future.
4. Opportunity Cost Example
For example, if you are given $20 and
you choose to go to the movies and
spend that $20. Your Opportunity Cost
would be everything else that you
could’ve done with that $20… like
a) Buy candy
b) Buy McDonalds
c) Save the money
5. Opportunity Cost
Questions
What is the opportunity cost of
attending this economics class?
What is the opportunity cost of
attending a concert by your favorite
band?
What is the opportunity cost of
increasing research for an AIDS
vaccine?
8. Incentives
Incentives are methods used to
encourage people to take certain
actions.
They can also be benefits offered
to encourage people to act in
certain ways.
Grades in school, Wages,
Praise/Recognition, etc.
10. Cost-benefit analysis- is an
approach that weighs the
benefits of an action against
its costs.
Economize- To make
decisions according to the
best combination of costs and
benefits.
11. Trade-Off
Is the alternative option
people give up when they
make choices.
Usually trade-offs do not
require all-or-nothing choices.
12. Trade-off/Opportunity Cost
Example
Timmy is failing Economics. He
has an Economics test next
Monday.
He hasn’t gone to tutorials after
school because he’s been
hanging out with his girl, Cindy,
instead.
14. Timmy and his decisions…
Timmy has to make decisions
according to the best
combination of costs and
benefits. In other words,
Timmy has to _________.
15. Timmy’s Cost-benefit Analysis
If Timmy chooses to study
instead of hang out with Cindy,
he’ll pass the test.
If Timmy doesn’t hang out with
Cindy, she’ll talk to someone else
instead.
20. Decision Making Grid
Pg15.
What is Max’s opportunity cost of 3 extra
hours of study?
Read the information about marginal costs
on pg16. What would be Max’s marginal
cost of moving from a grade of B+ to A-?
21.
22. After high school decision making
grid
Copy down the decision making grid
in your notes.
Public schools vs. Private schools?
$ and Class size
23. Make your own…
Make your own decision making
grid based on classes you want to
take in college…
25. How to represent opportunity
cost?
• The production
possibilities curve
(PPC) represents all
possible maximum
combinations of total
output that could
be produced.
27. Production Possibilities Table
Pg. 19
If you decided to make 35 muffins, how
many loaves of bread could you make?
What is the opportunity cost of making the
7 loaves of bread?
28.
29.
30. Guns vs. Butter
• “Guns vs. Butter” was a major issue during the
presidency of Lyndon B. Johnson in the 1960s.
“Great Society” program called for a “war on
poverty.” This required the government funding of
many social reforms.
• An expanding war in Vietnam saw these government
funds being switched from domestic programs,
“butter”, to defense spending, “guns”.
• The opportunity cost of increasing defense
production was that the social programs could not be
funded.
31. PPC: Guns vs. Butter
Copy figure 1.5 in your notes.
What do the “guns” represent?
What does the “butter” represent?