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Opportunity Cost. Mr. Marinello * Chippewa Valley Fall 2012. What is it?. Opportunity Cost The value of something that you give up on order to get something else you wanted. How do people make economic decisions?. Incentives.
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Opportunity Cost Mr. Marinello * Chippewa Valley Fall 2012
What is it? • Opportunity Cost The value of something that you give up on order to get something else you wanted.
How do people make economic decisions? Incentives • Benefits or punishments offered to encourage people to act in certain ways. Utility • Benefits or satisfaction gained from the use of a good or service.
Motivations for Choice Two Factors that power our choices: • People weigh the costs and benefits and make a purposeful choice No Free Lunch Every choice involves costs.
Let’s put this into practice Option #1 Work for 6 months and spend other 6 months traveling. • Opportunity Cost: The income she would have earned at her job. Christy has been offered a full time job for the whole year. But she wants to do some traveling.
Let’s put this into practice Option #2 Work for the whole year. • Opportunity Cost: The experience of traveling. Christy has been offered a full time job for the whole year. But she wants to do some traveling.
Opportunity Cost the value of the next-best alternative, or what is given up to get what is most wanted.
Let’s put this into practice Option #1 Work the extra hour hour. • Opportunity Cost: He’d miss the smack down that Deena puts on Snooki. • Dan’s boss asks him if he wants to work an overtime shift and earn double his wage, however he would miss tonight’s episode of The Jersey Shore.
Let’s put this into practice Option #2 Go home and watch Snooki puke all over Jwoww. • Opportunity Cost: The cash and the self respect of his future self Dan’s boss asks him if he wants to work an overtime shift and earn double his wage, however he would miss tonight’s episode of The Jersey Shore.
Marginal Benefit Vs. Marginal Cost • Marginal Benefit: how much does your utility (happiness) increase with eating an additional piece of pizza? • Marginal Cost: how much do your costs increase by producing an additional unit The additional increase or decrease of something brought on by a one unit increase of something else.
