Monday, March 16 Welcome back! Bellringer: What is a trade-off? Give two examples of trade-offs from your own life over the weekend.

Making decisions Trade-off: an alternative that we sacrifice when we make a decision –Cost-benefit analysis: What benefit am I getting for the cost? Opportunity cost: the most desirable alternative given up as the result of a decision ‘Guns or butter’: a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods

Thinking at the margin Thinking at the margin: deciding whether to do or use one additional unit of some resource This is how we make choices, seeking to use our resources most efficiently What is Jerry considering?

Karen’s decision-making grid Alternatives Sleep lateWake up early to study BenefitsGet more sleep Have more energy throughout the day Opportu nity cost Benefits forgone (given up)

Karen’s decision-making grid Alternatives Sleep lateWake up early to study BenefitsGet more sleep Have more energy throughout the day Opportu nity cost Extra study time Benefits forgone (given up)

Karen’s decision-making grid Alternatives Sleep lateWake up early to study BenefitsGet more sleep Have more energy throughout the day Opportu nity cost Extra study time Benefits forgone (given up) Better grade on test Teacher and parent approval Personal satisfaction

Karen’s decision-making grid Alternatives Sleep lateWake up early to study BenefitsGet more sleep Have more energy throughout the day Better grade on test Teacher and parental approval Personal satisfaction Opportu nity cost Extra study time Benefits forgone (given up) Better grade on test Teacher and parent approval Personal satisfaction

Karen’s decision-making grid Alternatives Sleep lateWake up early to study BenefitsGet more sleep Have more energy throughout the day Better grade on test Teacher and parental approval Personal satisfaction Opportu nity cost Extra study timeExtra sleep Benefits forgone (given up) Better grade on test Teacher and parent approval Personal satisfaction

Karen’s decision-making grid Alternatives Sleep lateWake up early to study BenefitsGet more sleep Have more energy throughout the day Better grade on test Teacher and parental approval Personal satisfaction Opportu nity cost Extra study timeExtra sleep Benefits forgone (given up) Better grade on test Teacher and parent approval Personal satisfaction Get more sleep Have more energy throughout the day

Making choices People choose … –Business and government decisions are made by people People always face choices … –They should choose the alternative that gives them the most advantageous combination of costs and benefits –People with different values make different choices

Value Goods and services do not have intrinsic value Their value is determined by the preferences of buyers and sellers Trading moves goods and services to higher- valued uses The price of a good or service is set by supply and demand Choosing a certain good signals that the good has value

Production possibilities There are many options to consider, and each decision has consequences and sacrifices How do we analyze the impacts of potential choices? Production possibilities curve: a graph that shows alternative ways to use an economy’s resources –Illustrates the relationship between two categories of goods

Production possibilities curve Melons (millions of tons) Shoes (millions of pairs)

Production possibilities Efficiency: using resources in such a way as to maximize the production of goods and services Production possibilities frontier: the line on a production possibilities graph that shows the maximum possible output –Shows efficiency! Underutilization: using fewer resources than an economy is capable of using (less than you have)

Production possibilities Countries choose what is most important to make based on the factors of production –Guns vs. butter –Watermelons vs. shoes

Production possibilities Law of increasing costs: law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases

Effects on Production Resources & technology –Natural resources, workforce, human and physical capital –Increase workers = an increase in production possibilities curve (more workers = greater production)

Thinking like an economist The successful study of economics involves developing a new way of thinking You analyze situations in a new way How well do you think like an economist? Write the following 10 sentences and determine whether you think they are true or false. Submit it when you are finished!

True or false 1.Because it is desirable, sunshine is scarce. 2.Because it is limited, polio is scarce. 3.Because water covers three-fourths of the earth’s surface and is renewable, it cannot be considered scarce. 4.The main cost of going to college is tuition, room, and board. 5.If mass transportation fares are raised, almost everyone will take the trains anyway.

True or false 6.You get what you pay for. 7.If someone makes an economic gain, someone else loses. 8.If one nation produces everything better than another nation, there is no economic reason for these two nations to trade.

True or false 9.A nonregulated monopoly tends to charge the highest possible rate. 10.A business owner’s decision to show more care for consumers is a decision to accept lower levels of profits.