What is Economics Chapter 1 Section 2 Opportunity Cost
What is Economics – Section 1 • 1. What is the difference between a good and a service? • 2. Why is the idea of scarcity a starting point for thinking economically. • 3. How is scarcity different from shortage? • 4. List and describe the four factors of production. • 5. What special advantages does physical capital offer? • 6. What role do entrepreneurs play in the economy?
What is Economics • Objectives: • 1. Describe why every decision involves trade-offs. • 2. Explain the concept of opportunity cost. • 3. Explain how people make decisions by thinking at the margin.
What is Economics • All human decisions involve trade-offs. The next best alternative to any choice is called an opportunity cost. • Many hotels will offer a special service for their guests. Maybe a ticket to the museum that costs $10.00 is sold to the hotel guest for $ 25.00. The guest did not have to wait in line for the ticket and they spent money instead of time to obtain the ticket.
What is Economics • Trade-offs: • Economists point out that all individuals, businesses, and large groups of people – even the government – make decision that involve trade-offs. • Trade-offs are an alternative that we sacrifice when we make a decision. • Trade-offs are all the alternatives that we give up whenever we choose one course of action over another.
What is Economics • Individual Trade-offs: • Each decision we make involves trade-offs. • i.e. If you choose to spend more time at work, you give up watching a movie, spending time with friends, and etc. • Business Trade-offs: • The decisions that businesspeople make about how to use land, labor, and capital resources also create trade-offs. • i.e. Farmers who plant broccoli cannot use that land to grow potatoes.
What is Economics • Society and Trade-offs: • Countries also make decisions that involve trade-offs. Economists simplify their explanations of the trade-offs countries face by using the example of guns and butter. • In short, the more butter that a country produces, the fewer guns that the country can produce. • This also works vice-versa.
What is Economics • Defining Opportunity Cost: • Usually one alternative is more desirable for a country/business/individual than another. • The MOST DESIRABLE alternative given up as the result of a decision is called the Opportunity Cost.
What is Economics • IF I gave you a choice between these four candy bars… • A B C D • Which one would you choose? • Which one (s) would be your opportunity costs?
What is Economics • IF I gave you a choice between these four lollipops… • Dum-Dum Pops Blow Pops Ring Pops Tootsie Pops • A B C D • Which one would you choose? • Which one (s) would be your opportunity costs?
What is Economics • IF I gave you a choice between the following… • Sleep Late or wake up early for a ski trip? • Sleep late or wake up early to eat breakfast? • Sleep late or wake up early to study for your Economics test? • Which one would you choose? • Which one would be your opportunity cost?
What is Economics • IF I gave you a choice between the following four soft drinks, which one would you choose? • A B C D • Which one would you choose? • Which one (s) would be your opportunity costs?
What is Economics • Thinking at the Margin: • When Economists look at decisions, they point out one more characteristic in addition to opportunity cost. • Many decisions involve adding one more unit or subtracting one more unit, such as one minute or one dollar. • To understand what it means to think at the margin, picture a piece of paper with a line drawn down the left side. • That line separates the space used for writing from extra space on the paper. • You could use some of that extra space or you could leave it blank. • You are thinking about using one additional unit.
What is Economics • Thinking at the Margin: • In the example of getting up early to study or sleep, you used an “all or nothing” approach. • You actually had more options available to you that I did not give you the opportunity to choose from. • A. You could have decided to get up one, two, or three hours earlier to study or sleep instead. • B. You could have made a decision by looking specifically at how many extra hours to study that morning. When you make a decision about how each extra hour would help your grade means you are thinking at the margin.
What is Economics • REVIEW: • 1. Present three examples that illustrate how all decisions involve trade-offs? • 2. Why must the opportunity cost of a decision always be something desirable? • 3. How do Economists use the phrase “guns and butter”? • 4. What does it mean to “think at the margin”?
What is Economics • Why do farmers often wait until a rainy day to do their errands in town, while a man in a new suit will forego his errands on the same day?
What is Economics • Why is a highly talented person who travels a lot willing to hire a chauffeur?
What is Economics • Why do businessmen often buy full-fare airline tickets while people planning a vacation fly when rates are the lowest?
What is Economics • Why do Americans today find themselves more pressed for time than their great-grandparents were, despite the fact that we have so many machines and appliances to save us time and labor?
What is Economics • Why do young women in India cut the grass surrounding the Taj Mahal with kitchen shears (a type of scissors) rather than using lawn mowers?
What is Economics • Why do movie stars, rock singers, and other high profile people have higher divorce rates than the rest of the American population?
What is Economics REVIEW: 1. Examples could be… What shall I do after school? Homework and grades? 2. An opportunity cost must be desirable because there would be no meaningful decision to be made between a desirable option and an undesirable option.
What is Economics REVIEW: 3. “Guns and Butter” refers to whether a country chooses to produce more military goods (guns) or more consumer goods (butter). 4. “Thinking at the margin” means making a decision about how much more or less to do. It allows people to evaluate options based on available resources.