1. Opportunity Cost

2. Every decision has an opportunity cost Every decision has an opportunity cost Choosing is refusing

3. A decision next best alternative The decision the sacrifice

4. Opportunity Cost The best alternative that you have to sacrifice Getting something of value almost always costs something (money, time, work, etc. or opportunity to do something else). Whatever is chosen, the trade-off is always an opportunity to do or buy something else. Acting one way instead of another.

5. Why are we willing to sacrifice? Decision making-table Benefits that outweigh benefits forgone are incentives

6. As economists, we must see the world in terms of decisions and opportunity costs. Decisions are not just “yes” and “no” or black or white.

7. Trade-offs Good economics thinks about the trade-offs and the secondary effects that can happen when trade-offs occur. What would it mean to have a little more or a little less and what are the possible trade-off and counter reactions. People act in their own self-interests – or for their own incentives. “Guns or Butter”

8. Thinking at the Margin How much more or how much less to do.

9. Decision Making at the Margin Comparing opportunity costs and benefits Cost/benefit analysis Marginal Cost Marginal Cost Marginal Benefit Marginal Benefit Must decide what’s sacrificed v. what’s gained. Once the opportunity cost outweighs the benefits, no more units should be added.