Trade Offs and Opportunity Cost

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Bell Ringer
 What
did you give up in order to
come to school this morning?
 In other words, what else could
you be doing with your time?
Objectives
Explain why every decision involves
trade-offs.
 Summarize the concept of opportunity
cost.
 Describe what economist Milton
Friedman meant when he said “There’s no
such thing as a free lunch.”

Trade Off
A
trade off is an exchange for
one thing in return for another.
 All decisions require trading one
goal for another.
 Let’s say you’re going to go out
on Friday night. You have lots of
choices of what you can do…
Trade Off
 Go out with your friends.
 Stay home and watch TV.
 Go on a date.
 Review your economics notes.
 Go to a movie with your parents.
 All
of these choices, except the
one you choose, are your possible
trade offs.
Trade Off
 Go out with your friends.
 Stay home and watch TV.
 Go on a date.
 Review your economics notes.
 Go to a movie with your parents.
 What
is one trade off of going on
a date?
Trade Off
 Go out with your friends.
 Stay home and watch TV.
 Go on a date.
 Review your economics notes.
 Go to a movie with your parents.
 Let’s
say your second choice is to
go out with your friends. If so, then
this is the trade off of going on a
date.
Opportunity Cost
 Go out with your friends.
 Stay home and watch TV.
 Go on a date.
 Review your economics notes.
 Go to a movie with your parents.
 In
economics, we call the value of
the next best alternative the
opportunity cost.
Opportunity Cost
 Go out with your friends.
 Stay home and watch TV.
 Go on a date.
 Review your economics notes.
 Go to a movie with your parents.
A
simpler definition of
opportunity cost is the cost of
making a decision.
Opportunity Cost
 Go out with your friends.
 Stay home and watch TV.
 Go on a date.
 Review your economics notes.
 Go to a movie with your parents.

You are giving up the chance to hang out
with your friends in the hopes of at least
getting the same value from going on
your date in terms of excitement and
camaraderie… if you know what I mean.
Opportunity Cost
 But
what is the actual cost of going
on your date?
 Remember that cost means more
than just monetary cost!!
 With an elbow partner, come up
with some other costs for choosing
to go on a date instead of going out
with your friends.
Opportunity Cost
 Monetary
cost
 Time
cost
 Social cost
 Emotional cost
 Health cost
 There’s
no such thing as a free lunch!
Review
A
trade off is the thing(s) you
give up to get one thing in return
for another.
 Opportunity cost is the value
or cost of this decision.
Review
 List
five things that were a
trade-off for coming to school
today.
 For one of your trade-offs,
identify the opportunity cost.
Crash Course Econ
“Intro to Economics” https://www.youtube.com/watch?v
=3ez10ADR_gM
What trade-offs did the
young man make that
helped him get seniority?
What was the opportunity cost?
Bell Ringer
“Every gun that is made, every warship
launched, every rocket fired signifies, in the
final sense, a theft from those who hunger and
are not fed, those who are cold and not
clothed.”
-President Dwight D. Eisenhower
How does this quote relate
to the economic concepts of
trade-offs and opportunity cost?
Objectives
1.
2.
3.
Interpret a production possibilities
curve.
Explain how production possibilities
curves show efficiency, growth, and cost.
Describe the difference between
“efficiency” and “underutilization”
Guns or Butter
 How
does a nation decide what
and how to produce?
 “Guns or Butter”
◦ The idea that a country that decides to
produce more military goods (“guns”)
has fewer resources to produce
consumer goods (“butter”), and vice
versa.
Production Possibilities
Economists often use graphs to analyze
the choices and trade-offs that people
make.
 A production possibilities curve is a
graph that shows alternative ways to use
an economy’s productive resources.

Production Possibilities Curve
How many millions of tons watermelons can be
produced if they are making 9 million pairs of shoes?
Law of Increasing Costs
Production Possibilities Curve
Each point on the production
possibilities curve represents a trade-off.
 Why are trade-offs necessary?

◦ Resources are limited; wants are unlimited!
Efficiency vs. Underutilization
 Efficiency
is where an economy
uses its resources in a way that
maximizes the output of goods and
services
 Underutilization is where an
economy uses fewer resources
than it is capable of using
Review
◦ National economies (and individual
people) try to make the most of their
available resources.
◦ Possibility production curves help us
determine the point at which an
economy is operating efficiently.
◦ When an economy utilizes its
resources well, it is said to be efficient.
If it does not, it can run the risk of
underutilization.
Review
◦ Working with an elbow partner, come up
with some examples of “guns or butter”
decisions, either in your personal life or in
the national economy.
Assignment
Go to page 21 in the textbook.
 Working with a partner or on your own,
read “Should the federal government
spend money on space exploration?”
 Read the three documents at the top of
the page and answer questions 1-3.
 Then, compose a paragraph (5-7
sentences) answering the following
question:

Should the federal government spend money on
space exploration? Why/why not?
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