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Rank these in order of preference...

Rank these in order of preference. 1. Ticket to see your favourite band. 2. A new pair of jeans. 3. Ipod Nano. 4. Canon 60D SLR camera. 8. A new mobile phone. 5. A quality watch. 6. Sony Blue Ray player. 7. A new pair of trainers. GCSE ECONOMICS: UNIT 11. Making Decisions.

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Rank these in order of preference...

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  1. Rank these in order of preference... 1. Ticket to see your favourite band 2. A new pair of jeans 3. IpodNano 4. Canon 60D SLR camera 8. A new mobile phone 5. A quality watch 6. Sony Blue Ray player 7. A new pair of trainers

  2. GCSE ECONOMICS: UNIT 11 Making Decisions Mr Tarn

  3. Aims of today’s lesson … • Understand the basic economic problem • Identify and analyse the concept of opportunity cost • Understand the costs and benefits of making decisions

  4. Why do we have to make ‘Choices’? • All economic questions and problems arise from the problem of scarcity • Economics assumes people do not have the resources, income and time (i.e. they are scarce) to satisfy all of their wants and needs • Therefore, we must make choices about how to allocate those limited resources • We make decisions about how to spend our money and use our time

  5. What is meant by ‘opportunity cost’? • How many cans of pop can you buy instead of one movie ticket? A. Ten • How many packets of chewing gum can you buy instead of one can of pop? • Two • If you buy four packs of gum, how many cans of pop could you have bought? A. Two

  6. What is meant by ‘opportunity cost’? • In order to buy a movie ticket, you need to give up a certain amount of gum and pop • If you buy 20 packets of gum you give up going to the movie or buying pop • Decisions therefore involve trade offs where a CHOICE has to be made • When you make a choice, you give up an opportunity to do something else • The highest-valued alternative you give up (i.e. your second choice) is called the OPPORTUNITY COST of your decision

  7. What is meant by ‘opportunity cost’? • OPPORTUNITY COST is the highest-valued forgone activity • It is not all the possible things you have given up • For example, if you go to the movies you have to give up a certain amount of gum and pop • If you are a sodaholic, you have to give up five sodas • If you are gum fanatic, you surrender twenty packs of gum • But, the opportunity cost of a movie is not five sodas and twenty packs of gum; it is five sodas OR twenty packs of gum.

  8. Over to you... • Open and compete the document called... “Opportunity Cost Questions”

  9. Costs and Benefits • Already in this lesson, we have come across a number of decisions involving opportunity costs • A teenager’s decision to spend £30 going out with friends, perhaps to the cinema, or to buy a new outfit (top and pair of jeans) would involve weighing up the benefits of enjoying a good night out against the cost of not being able to buy the new garment • What do you think are the COSTS and BENEFITS of going out with friends, with the opportunity cost of buying an outfit?

  10. Costs and Benefits of going out... • Benefits of going out: • enjoying a good night • enjoying the company of friends • avoiding offending friends by refusing to go out, and so on • Costs of going out: • the enjoyment would only last for a single evening, whereas clothes would last for several months • a teenager might worry about reaction of friends if they felt their clothes were ‘un-cool’ • the ‘feel-good’ factor from wearing new clothes would be lost

  11. Over to you... • Open and compete the document called... “Making Decisions”

  12. Video case study... • Watch the clip on ‘Opportunity Cost’ • Despite the Americanisms it is quite effective at explaining what Opportunity Cost is Opportunity Cost

  13. Extension Task: Hidden Costs? • What are the cost implications associated with a mobile phone? • Try Mobile Mayhem to find out! Mobile Mayhem

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