Opportunity Cost The Next Best Alternative

Opportunity cost Opportunity cost is the highest-valued option that is relinquished – The value of the next best alternative that had to be given up for the alternative that was chosen – what you lose when you make a trade-off

Opportunity Cost = Trade-Off Sacrificing one good or service to purchase or produce another – It is what you give up in order to do something else Time Money Certain activities

Opportunity Benefit Value of the alternative that was chosen What you gain when you make a trade-off

investing $500 in a new stereo system? going to college? What is the Opportunity cost of:

Opportunity cost varies from person to person What would you have purchased if you did not purchase the $500 stereo system? What could you earn if you don’t go to college

When we use resources to produce one good or service, the opportunity cost is that we cannot produce another good or service. When we make birdcages, we cannot use the same resources to make chairs.

Choosing a career / job Option 1 being an actress Option 2 being a nurse Cost being an actress < cost being a nurse Income lost being an actress < income lost being a nurse Job security for an actress < job security for a nurse Choose the job with the lowest opportunity cost

Full cost of a Concert Suppose you are going to a 1 hour concert that costs $200 for a ticket Option 2: working as a salesman earning $30 per hour Option 3: working as a tutor earning $100 per hour Full cost of attending the concert = price of ticket + income lost (highest-valued option) Full cost of attending the concert = $200 + $100 = $300

Is Time a cost? Price of a mobile phone =$600 Search = one evening Income forgone while searching = $200 Full cost of buying the mobile phone is $800

Uses of a flat Mrs. Lo has the following options for her flat in London: Option 1 Owner occupied Option 2 Vacant Option 3 Lease with a rental income $50,000 per year Suppose she chooses to live in her flat, what is her cost of living in that flat?

Social Cost Building a new railway $100 million Creating pollution nearby (cutting trees, noises) $5 million Social cost of building highway = private cost + external cost $105 million

Miss Cheng could spend two hours at a concert or tutor a student at $70 per hour. She could use the time on painting instead and earn a total of $170. If the price of the concert ticket is $250, what is the opportunity cost of going to the concert? A. $70 B. $140 C. $170 D $240 E $420

No. of coupons Gifts51520CupBagCamera Mary has accumulated 20 Coupons. What is the opportunity cost if she uses them in exchange for one camera? A.Cup B. Bag C. Cup and Bag D. Cup or Bag

No. of coupons Gifts51520CupBagCamera Mary has accumulated 20 Coupons. What is the opportunity cost if she uses them in exchange for one camera? A.Cup B. Bag C. Cup and Bag D. Cup or Bag

Which of the following statements about scarcity is true? A. Once a choice is made, the problem of scarcity is solved. B. A good is scarce if not everyone has it. C. Scarcity means unlimited human wants. D. Both rich people and poor people face the problem of scarcity.

Which of the following are opportunity costs of attending school? (1) Poor examination results (2) Income forgone (3) School fees (4) Expenditure on dinners

Classwork 1.Think: Create a t-chart with 10 examples of trade-offs that you made. Label one column opportunity cost and one column opportunity benefit. 2.Compare: Choose three examples from the t- chart and explain to a partner why you made the choices that you did. 3.Share: Choose one of your partner’s examples and explain it to the class

comparative advantage : Individuals and nations gain by producing goods at relatively low costs, and exchanging their outputs for different goods produced by others at relatively low cost. All potential trading partners can gain enormously through appropriate specialization and exchange. Opportunity cost is the key to comparative advantage :