Date: February 5, 2013 Topic: Opportunity Cost Aim: How does the opportunity cost effect the choices we make? Do Now: Handout.

Trade-Offs  Trade-Off  all of the alternatives we give up whenever we choose one course of action over another.  How might trade-offs effect business?  Society and trade-offs  “guns or butter”  A country that spends more money on the military has less money to spend on consumer goods…. OR

What’s Opportunity Cost?  Opportunity Cost  the most desirable alternative given up as a result of a decision.  Can anyone provide an example? Alternative: Buy a TV BENEFITSCOSTS

Thinking at the Margin  Definition: deciding whether to use one additional resource. Hour - Hourly Wage - Value of Time Hour 1 $10 $2 Hour 2 $10 $2 Hour 3 $10 $3 Hour 4 $10 $3 Hour 5 $10 $4 Hour 6 $10 $5 Hour 7 $10 $6 Hour 8 $10 $8 Hour 9 $15 $9 Hour 10 $15 $12 Hour 11 $15 $18 Hour 12 $15 $20

 Law of Diminishing Returns  one factor of production is increased while the others remain constant, the overall returns will decrease after a certain point.

Law of Diminishing Returns  You will reach a point where each additional worker will provide less and less output than his/her predecessor because there is less land to work on.

Homework  Decide whether to work 2,4, or 6 hours at an after school job by comparing the opportunity cost and the benefit for each alternative…