Opportunity Cost

1. Opportunity Cost Mr. Odren

2. Opportunity Cost As you make choices about how to survive, consider the consequences of each choice. These consequences include anything you might give up in making a particular choice. Economists call this analysis of opportunity cost, because using a resource in one way may “foreclose” (or not allow) the opportunity to use it in any other way.

3. Definition In any choice, the opportunity cost is… the highest-valued alternative that must be foregone (given up) when another alternative is chosen

4. Examples • If you choose to buy a Ford Mustang, you give up buying your next choice, Honda. • If you use akayak paddle for firewood, you cannot use it as a fishing pole. • If you use drinking water collected from the rain for taking a shower, you cannot use it to satisfy your thirst.

5. Opportunity Cost is not… • A list of ALL the things you could have done with or used the paddle for. • It ISonly the value of the very next best alternative, or your number 2 ranking on a list, or the second thing you would have done with it. • You can’t make furniture, burn it, use it as a bat, pick your teeth with it AND dig a hole in the sand. The opportunity cost is only the highest valued alternative, not all of the alternatives!

6. Need A Volunteer! Opportunity Cost Example…

7. Introduction Economics Reminder…Basically… We all face scarcity. Because of scarcity, we have to make choices. All choices have costs. Opportunity Cost is the first alternative to a choice. There are no “free lunches” – somebody pays for it TINSTAAFL!!

8. Lesson Essential Question How might a society best allocate scarce resources?