Trade offs and Opportunity Cost

1. Trade offs and Opportunity Cost

2. Trade Offs • Trade Offs are “either/or” choices which a person makes. • There are choices made every day which involve trade offs. Doing one thing means you give up doing something else. • http://www.youtube.com/watch?v=7geyX1Er1zs

3. Trade offs lead to “costs” • When you make a trade off, you give up something to get something else. • The next most desirable choice that you gave up is called the “opportunity cost”.

4. Learning Targets for Chapter 1: • 1. I can understand the concept of scarcity and its role in decision-making. • 2. I can identify and give real life examples of the factors of production. • 3. I can list and explain tradeoffs and identify opportunity cost in personal • decisions in order to make informed choices.

5. Note-Learning target #3 is… • 3. I can list and explain tradeoffs and identify opportunity cost in personal decisions in order to make informed choices. • Can you do this?

6. Identifying Trade Offs • Write down 3 examples of trade offs from your own life.] • What was the “opportunity cost” of each? • Write down 3 examples of trade offs from current events. • What was the opportunity cost of each?

7. Marginal Cost/Marginal Benefit • Marginal Cost is the additional cost of using one more unit of a good or service. • Marginal Benefit is the additionalsatisfaction gained by using one more unit of a good or service.

8. Marginal Cost/Marginal Benefit • Example: • Fred decided to study one extra hour for his test the next day. This cost him time watching his favorite zombie movie. • Fred scored a 93% on his test, up from an 79% on the previous test.

9. Cost Benefit Analysis • Weighing the costs against the benefits. • Basically- “Is it worth it?” • Using “marginal analysis” you can be more precise- weigh the extra cost against the extra benefit.