What is Opportunity Cost? By Ms. Lane
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1 What is Opportunity Cost? By Ms. Lane
2 Decision Making Everyone makes decisions all day long. List 5 decisions you have made in the last 24 hours.
3 A trade-off is an alternative or choice that we sacrifice when we make a decision. When the alarm rings at 6 a.m., I get up to go to school. What are the trade-offs or choices I sacrifice if I get up and go to school? Does every decision you make involve trade-offs? Trade-off
4 Opportunity Cost The opportunity cost is the next best alternative to any choice you make. What is the next best alternative to getting up and going to school when my alarm rings at 6 a.m.? Class vote
5 Opportunity Cost Animation This is sexist but it explains opportunity cost. X4 What is the opportunity cost in this situation?
6 The Decision-Making Grid Economists encourage us to consider the benefits and costs of our decisions. Karen s Decision-making Grid Alternatives Benefits Enjoy more sleep Sleep late Have more energy during the day Wake up early to study Better grade on test Teacher and parental approval Personal satisfaction Decision Sleep late Wake up early to study for test Opportunity cost Extra study time Extra sleep time Benefits forgone Better grade on test Teacher and parental approval Personal satisfaction Enjoy more sleep Have more energy during the day Chapter 1, Section 2
7 Opportunity Cost Situations 1. Go to the movies 2. Study for a big exam 3. Clean up my room 4. Buy a new pair of shoes 5. Get married and have a family right after graduating high school 6. Work 20 hours a week while still in high school 7. Join the military after high school Make the decision making grid for the situation that is assigned to you How can a decisionmaking grid help you identify the opportunity cost of a decision?
8 Guns vs. Butter Guns symbolizes military spending of the USA or any other country Butter symbolizes consumer spending of the USA or any other country
9 Limited Resources Since there are limited resources, a country has to decide whether to spend a greater portion of its funds or money on guns (military) or butter (consumer spending). The more that is spent on guns, the less that is spent on butter. The more that is spent on butter, the less that is spent on guns.
10 Identify the good in guns or butter category
11 Thinking at the Margin Thinking at the margin means to think about your next step forward. The word "marginal" means "additional." The first glass of lemonade on a hot day quenches your thirst, but the next glass, maybe not so much. If you think at the margin, you are thinking about what the next or additional action means for you.
12 Marginal (additional) product How many additional tomatoes can you get by taking better care of your garden? If an hour extra in the garden means you will get 12 more tomatoes, then one additional hour of work results in 12 additional tomatoes. Economists sometimes summarize that by saying your marginal product of labor is 12. That just means you can get 12 more tomatoes for one additional hour of work. 1 hour of additional work = 12 more tomatoes
13 Thinking at the Margin When you decide how much more or less to do, you are thinking at the margin. Options Benefit Opportunity Cost 1 st hour of extra study time Grade of C on test One hour of sleep 2 nd hour of extra study time Grade of B on test 2 hours of sleep 3 rd hour of extra study time Grade of B+ on test 3 hours of sleep Chapter 1, Section 2
14 1. Opportunity cost is Section 2 Review (a) any alternative we sacrifice when we make a decision. (b) all of the alternatives we sacrifice when we make a decision. (c) the most desirable alternative given up as a result of a decision. (d) the least desirable alternative given up as a result of a decision. 2. Economists use the phrase guns or butter to describe the fact that (a) a person can spend extra money either on sports equipment or food. (b) a person must decide whether to manufacture guns or butter. (c) a nation must decide whether to produce more or less military or consumer goods. (d) a government can buy unlimited military and civilian goods if it is rich enough. 3. Complete Chapter 1 Section 2 quiz review at: until you get 100% on all vocabulary 4. Take the Economics Chapter 1 Section 2 quiz at: Test yourself using these materials until you have mastered them. You will be given a unit test on each topic. 5. Extension activity: Read Chronic Food Shortage Shows Despite Efforts by N. Korea to Hide It and Rocket Launch Cost Enough to End Famine in North Korea for a Year Draw a picture or cartoon that represents the economic concepts illustrated in these news stories Chapter 1, Section 2
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