Chapter Objectives
Section 3: Economic Choices and Decision Making
Analyze ____________ and ____________ costs.
Explain ____________-making strategies.
Introduction
•The process of making a __________ is not always easy.
–Because resources are __________, consumers need to make wise choices.
–To become a good decision maker, you need to know how to identify the problem and then analyze
your _______________.
–Finally, you have to make your choice in a way that carefully considers the costs and benefits
of each possibility.
Trade-Offs and Opportunity Cost
•There are alternatives and _______ to everything we do.
•In a ________ where “there is no such thing as a free lunch,” it pays to _________ these concepts
closely.
Trade-Offs
•People face ___________, or alternative choices, whenever they make an economic decision.
•To help make the decision, constructing a _____ is one way to approach the __________.
 Using a decision-making grid…
–forces you to consider a number of ___________ alternatives.
–requires you to identify the __________ used to evaluate the alternatives.
–forces you to evaluate each ______________ based on the criteria you selected.
Opportunity Cost
•To an economist cost often means more than the price ______ placed on a good or service.
•Instead, economists think broadly in terms of ______________ cost–the cost of the next best
alternative use of money, time, or resources when one choice is made rather than another.
•Even time has an opportunity cost, although you cannot always put a ____________ value on it.
Production Possibilities
•A popular model economists use to illustrate the concept of opportunity cost is the production
possibilities __________.
•This is a _________ representing various combinations of goods and/or services an economy can
produce when all productive resources are fully employed.
•A classic example is a mythical country called _______ which produces two goods–guns and butter.
Identifying Possible Alternatives
•Even though Alpha only produces two goods, the country has a number of alternatives available to it.
This is why the figure is called a production “_____________” frontier.
•Eventually though, Alpha will have to settle on a __________ combination because its resources are
___________.
Fully Employed Resources
•All points on the curve represent ______________ combinations of output possible if all resources
are fully employed.
•As long as all resources are fully employed, however, there are no extra resources to produce extra
quantities of _______ or ________.
Ch. 1 S. 3
The figure is called a production possibilities “frontier” to indicate the maximum combinations of
goods and/or services that can be produced.
Opportunity Cost
•Opportunity cost is a general concept that is ______________ in terms of trade-offs, or in terms of
things given up to get something else.
•Opportunity cost is not always measured in terms of __________ and ________.
The Cost of Idle Resources
•If some resources were not fully employed, then it would be impossible for Alpha to reach its
______________.
•If Alpha was operating at point E, opportunity cost of the ______________ resources would be the
100 units of lost butter ______________.
•Production at point E could be the result of other idle resources, such as _____________ or land
that are available but are not being used.
•As long as some resources are ______, the country cannot _________ on its frontier.
Economic Growth
•The production possibilities frontier represents potential _________ at a given point in time.
Eventually, however, population may grow, the capital ________ may grow, and productivity may
increase.
•If this happens, then Alpha will be able to produce more in the future than it can today.
Economic _________ causes the production possibilities frontier to move outward.