What is Economics
Chapter 1 Section 2
Opportunity Cost
What is Economics – Section
1
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1. What is the difference between a good and a
service?
2. Why is the idea of scarcity a starting point for
thinking economically.
3. How is scarcity different from shortage?
4. List and describe the four factors of production.
5. What special advantages does physical capital
offer?
6. What role do entrepreneurs play in the
economy?
What is Economics
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Objectives:
1. Describe why every decision involves
trade-offs.
 2. Explain the concept of opportunity
cost.
 3. Explain how people make decisions by
thinking at the margin.
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What is Economics
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All human decisions involve trade-offs. The next
best alternative to any choice is called an
opportunity cost.
Many hotels will offer a special service for their
guests. Maybe a ticket to the museum that costs
$10.00 is sold to the hotel guest for $ 25.00. The
guest did not have to wait in line for the ticket and
they spent money instead of time to obtain the
ticket.
What is Economics
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Trade-offs:
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Economists point out that all individuals,
businesses, and large groups of people – even
the government – make decision that involve
trade-offs.
Trade-offs are an alternative that we sacrifice
when we make a decision.
Trade-offs are all the alternatives that we give
up whenever we choose one course of action
over another.
What is Economics
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Individual Trade-offs:
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Each decision we make involves trade-offs.
i.e. If you choose to spend more time at work, you
give up watching a movie, spending time with
friends, etc.
Business Trade-offs:
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The decisions that businesspeople make about
how to use land, labor, and capital resources also
create trade-offs.
i.e. Farmers who plant broccoli cannot use that land
to grow potatoes.
What is Economics
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Society and Trade-offs:
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Countries also make decisions that involve tradeoffs. Economists simplify their explanations of the
trade-offs countries face by using the example of
guns and butter.
In short, the more butter that a country produces,
the fewer guns that the country can produce.
This also works vice-versa.
What is Economics
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Defining Opportunity Cost:
Usually one alternative is more desirable for
a country/business/individual than another.
 The MOST DESIRABLE alternative given
up as the result of a decision is called the
Opportunity Cost.
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What is Economics
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IF I gave you a choice between these four
candy bars…
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A
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Which one would you choose?
Which one (s) would be your opportunity costs?
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B
C
D
What is Economics
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IF I gave you a choice between these four
lollipops…
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Dum-Dum Pops
Blow Pops
C
Tootsie Pops
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A
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Which one would you choose?
Which one (s) would be your opportunity costs?
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B
Ring Pops
D
What is Economics
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IF I gave you a choice between the following…
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Sleep Late or wake up early for a ski trip?
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Sleep late or wake up early to eat breakfast?
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Sleep late or wake up early to study for your
Economics test?
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Which one would you choose?
Which one would be your opportunity cost?
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What is Economics
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IF I gave you a choice between the following four soft
drinks, which one would you choose?
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A
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B
C
D
Which one would you choose?
Which one (s) would be your opportunity costs?
What is Economics
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Thinking at the Margin:
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When Economists look at decisions, they point out one more
characteristic in addition to opportunity cost.
Many decisions involve adding one more unit or subtracting
one more unit, such as one minute or one dollar.
To understand what it means to think at the margin, picture a
piece of paper with a line drawn down the left side.
That line separates the space used for writing from extra
space on the paper.
You could use some of that extra space or you could leave it
blank.
You are thinking about using one additional unit.
What is Economics
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Thinking at the Margin:
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In the example of getting up early to study or sleep,
you used an “all or nothing” approach.
You actually had more options available to you that
I did not give you the opportunity to choose from.
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A. You could have decided to get up one, two, or three
hours earlier to study or sleep instead.
B. You could have made a decision by looking
specifically at how many extra hours to study that
morning. When you make a decision about how
each extra hour would help your grade means you
are thinking at the margin.
What is Economics
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REVIEW:
1. Present three examples that illustrate
how all decisions involve trade-offs?
 2. Why must the opportunity cost of a
decision always be something desirable?
 3. How do Economists use the phrase “guns
and butter”?
 4. What does it mean to “think at the
margin”?
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What is Economics
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Why do farmers often wait until a rainy
day to do their errands in town, while a
man in a new suit will forego his errands
on the same day?
What is Economics
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Why is a highly talented person who
travels a lot willing to hire a chauffeur?
What is Economics
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Why do businessmen often buy full-fare
airline tickets while people planning a
vacation fly when rates are the lowest?
What is Economics
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Why do Americans today find
themselves more pressed for time than
their great-grandparents were, despite
the fact that we have so many machines
and appliances to save us time and
labor?
What is Economics
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Why do young women in India cut the
grass surrounding the Taj Mahal with
kitchen shears (a type of scissors) rather
than using lawn mowers?
What is Economics
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Why do movie stars, rock singers, and
other high profile people have higher
divorce rates than the rest of the
American population?
What is Economics
REVIEW:
1. Examples could be…
What shall I do after school?
Homework and grades?
2. An opportunity cost must be desirable
because there would be no meaningful
decision to be made between a desirable
option and an undesirable option.
What is Economics
REVIEW:
3. “Guns and Butter” refers to whether a
country chooses to produce more military
goods (guns) or more consumer goods
(butter).
4. “Thinking at the margin” means making a
decision about how much more or less to
do. It allows people to evaluate options
based on available resources.