1. 2 Some Tools of Economic Analysis  What is opportunity cost?  What questions must every economy answer?  What are the different economic systems that exist in the world?

2. 1 TWO roads diverged in a yellow wood, And sorry I could not travel both And be one traveler, long I stood And looked down one as far as I could To where it bent in the undergrowth; Then took the other, as just as fair, And having perhaps the better claim, Because it was grassy and wanted wear; Though as for that the passing there Had worn them really about the same, The Road Not Taken (Robert Frost)

3. 2 And both that morning equally lay In leaves no step had trodden black. Oh, I kept the first for another day! Yet knowing how way leads on to way, I doubted if I should ever come back. I shall be telling this with a sigh Somewhere ages and ages hence: Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference. The Road Not Taken (Robert Frost)

4. 3 Choice and Opportunity Cost  Making decisions requires comparing the costs and benefits of alternative choices.  The opportunity cost of any item is the value of the next best alternative that is given up. Opportunity cost is subjective. Opportunity cost may vary with circumstance.

5. 4 Choice and Opportunity Cost Examples: The opportunity cost of… …going to college for a year is not just the tuition, books, and fees, but also the foregone wages. …seeing a movie is not just the price of the ticket, but the value of the time you spend in the theater.

6. 5 Choice and Opportunity Cost  A sunk cost is a cost that has already been incurred and cannot be recovered.  Sunk costs are irrelevant for present and future economic decisions.

7. 6 A C T I V E L E A R N I N G 1 : Exercise You can either spend spring break working at home for $80 per day or go to Florida for the week.  If you stay home, your expenses will total about $100.  If you go to Florida, the airfare, hotel, food, and miscellaneous expenses will total about $700. What is your opportunity cost of going to Florida? 6

8. 7 What Three Questions Must Every Economic System Answer?  What goods and services will be produced?  How will goods and services be produced?  For whom will goods and services be produced?

9. 8 Economic Systems  The “rules of the game” determine how an economic system answers these three questions  Types of economic systems include: pure capitalism pure command system mixed systems transitional systems economies based on custom or religion

10. 9 A C T I V E L E A R N I N G 2 : Discussion Questions The United States is best described as a mixed system. 1.What are some elements of command in the U.S. economy? 2.What are some elements of tradition in the U.S. economy? 9