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Understanding Opportunity Cost with Coffee and CDs

Explore opportunity cost using a budget constraint scenario with Starbucks coffee and CDs. Calculate and graph different opportunity costs of gaining CDs. Learn through practical examples and visual aids.

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Understanding Opportunity Cost with Coffee and CDs

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  1. Cups of Starbucks Coffee @ $3 each 10 A (0,10) 9 8 7 6 Budget constraint is $30 5 4 3 2 1 C (2,0) 0 1 2 CD’s @ $15 each • What is the opportunity cost of gaining one CD if your current decision point is 10 cups of coffee?

  2. Graphing opportunity costs in a two product world with a budget constraint Cups of Starbucks Coffee @ $3 each 10 A (0,10) 9 8 7 6 5 B (1,5) 4 3 2 1 C (2,0) 0 1 2 CD’s @ $15 each Moving from point B to point C means that the opportunity cost of gaining one more CD is __?__.

  3. Cups of Starbucks Coffee @ $3 each 10 A (0,10) 9 8 Opportunity Cost = 5 cups of coffee 7 6 5 B (1,5) 4 3 2 1 C (2,0) 0 1 2 CD’s @ $15 each • Moving from point A to Point B means that the opportunity cost of gaining 1 CD is 5 cups of coffee • Moving from point B to point C means that the opportunity cost of gaining one more CD is 5 more cups of coffee

  4. Cups of Starbucks Coffee @ $3 each 10 A (0,10) 9 8 7 6 5 B (1,5) 4 3 2 1 C (2,0) 0 1 2 CD’s @ $15 each • Moving from point A to Point B means that the opportunity cost of gaining 1 CD is 5 cups of coffee • Moving from point B to point C means that the opportunity cost of gaining one more CD is 5 more cups of coffee

  5. Try it yourself • Create a budget constraint and two product example. Hint: use prices that keep the math simple and the quantities small. (Example: $2 for one good, $6 for another good, $24 budget constraint.) • Create a graph of your example. Label completely! • Do not make your graph too small! • Indicate the opportunity cost associated with moving from one point on the budget constraint line to another point. • Put your name, period and date in the upper right hand corner. You will turn this in.

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