DateDate: February 5, 2013: February 5, 2013

TopicTopic: Opportunity Cost: Opportunity Cost

AimAim: How does the opportunity cost : How does the opportunity cost

effect the choices we make?effect the choices we make?

Do NowDo Now: Handout. : Handout.

Trade-OffsTrade-Offs Trade-OffTrade-Off all of the all of the alternatives we give alternatives we give

up up whenever we choose one course of action whenever we choose one course of action over another.over another.

How might trade-offs effect business?How might trade-offs effect business?

Society and trade-offs Society and trade-offs “guns or butter”“guns or butter”

A country that spends more money on the A country that spends more money on the military has less money to spend on consumer military has less money to spend on consumer goods….goods….

OR

What’s Opportunity What’s Opportunity Cost?Cost?

Opportunity CostOpportunity Cost the most desirable the most desirable alternative given up as a result of a decision. alternative given up as a result of a decision.

Can anyone provide an example?Can anyone provide an example?

Alternative:  Buy a TV

BENEFITS COSTS

   

   

   

   

Thinking at the MarginThinking at the Margin

DefinitionDefinition: : deciding deciding whether to use whether to use one additional one additional resource. resource.

Hour - Hourly Wage - Value of TimeHour 1 $10 $2Hour 2 $10 $2Hour 3 $10 $3Hour 4 $10 $3Hour 5 $10 $4Hour 6 $10 $5Hour 7 $10 $6Hour 8 $10 $8Hour 9 $15 $9Hour 10 $15 $12Hour 11 $15 $18Hour 12 $15 $20

Law of Diminishing ReturnsLaw of Diminishing Returns one factor of one factor of production is increased while the others remain production is increased while the others remain constant, the overall returns will decrease after constant, the overall returns will decrease after a certain point. a certain point.

Law of Diminishing Law of Diminishing ReturnsReturns

You will reach a You will reach a point where each point where each additional worker additional worker will provide less will provide less and less output and less output than his/her than his/her predecessor predecessor because there is because there is less land to work less land to work on. on.

Hom

ew

ork

Hom

ew

ork

Decide whether to

Decide whether to work 2,4, or 6 hours at

work 2,4, or 6 hours at

an after school job by

an after school job by

comparing the

comparing the opportunity cost and

opportunity cost and

the benefit for each

the benefit for each alternative…alternative…