1. Econ Essentials #3 Opportunity Cost

2. Opportunity Cost Objectives • To explain basic economic questions. • To define opportunity cost. • To estimate opportunity cost. • To explain how opportunity cost varies.

3. What The Economic Problem? • We have limited resources, but unlimited wants • This is known as

4. Thus, • We must allocate (distribute) our resources effectively AND SO, • We have to make choices or trade-offs

5. The Economic Questions! • What to produce? • If resources are limited, what do we choose to use them for? • If many new students move into the area, should we build another school or expand this one?

6. 2. How to Produce? • How do we make products? • If building a house, do you buy new machines or hire more workers to make the product? • Why might they hire more workers instead of buying new equipment?

7. 3. For whom to produce? • Who do we allocate our limited resources to? • Should we spend more money on schools or jails?

8. Quick Review (Copy, if you want to!!) • Which of the following is a service? • Concert • Hot dog • Computer • Which of the following is a natural resource? • Hammer • Gold • Cash

9. The Road Not Travelled • When we choose one thing, we lose another – called Opportunity Cost • – value of the next best alternative you must pass up (lost opportunity)

10. But, • How do you know what you have missed out on?

11. Calculating the Cost • The Opp. Cost varies with the situation • Value of your time on a Wed night vs. Sat night

12. Timeis the ultimate limitation / limited resource • Sunk Cost:resources spent, that can’t be recovered • Do you walk out halfway through a bad movie?