Fundamentals of Economics

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Presentation transcript:

Fundamentals of Economics SSEF1, SSEF2, SSEF3, SSEF6, and SSEMI1

Opportunity Cost

Opportunity Cost Defined by the GPS as “ the next best alternative given up when individuals, businesses, and government confront scarcity by making choices” WHAT is not chosen when you make a choice I have $20 that my parents gave me as gas money. I could use it to put gas in my car or I could bum a ride with my boyfriend and use the money to buy him dinner instead. I choose to put the gas in my car. What was the opportunity cost? Not driven by money, it’ s the choice!

Consider these questions A headline[1] in the New York Times read “Study Finds Enrollment Is Up At Colleges Despite Recession.” How would you rewrite this headline now that you understand the idea of opportunity cost? [1] Ceils 3rd, William, 1991. Study Finds Enrollment is Up at Colleges Despite Recession. New York Times. December 28, 1991 If you didn’t go to college there is no promise that you could find a job- so spend the money and get a degree that could help you make more money anyway

Rational Decision Making Occurs when marginal benefits of an action equal or exceed the marginal costs. Make a jot list of following rational decisions that you have made during your years in high school 2 extracurricular activity decisions you made and why 2 academic choices 2 personal/ family choices

EOCT Questions A company is trying to decide how many workers to hire. They want to maximize profits. How many workers should the company hire to ensure marginal costs do not exceed marginal revenue? A) 8 B) 9 C) 10 D) 11 Answer is B= 9 workers

EOCT Questions The Center for Disease Control (CDC) evaluates the marginal cost effectiveness of vaccinating all people against certain diseases. If the marginal benefit is set at $5,000, which generalization explains why the CDC does not mandate vaccination of 100% of the people? A) At low vaccination coverage rates (0-70%), the marginal cost is greater. B) At high vaccination coverage rates (70-100%), the marginal cost is less. C) At 100% vaccination coverage, the cost per case prevented is less than the marginal benefit. D) At 100% vaccination coverage, the cost per case prevented is greater than the marginal benefit Correct, read the following explanation if you choose: D.The CDC does not mandate vaccination of 100% of the people because at 100% vaccination coverage, the cost per case prevented is greater than the marginal benefit. The marginal benefit needs to be greater than, or equal to, the marginal cost to be cost effective.