Opportunity Cost

Trade-Offs Trade-offs- All the alternatives that we give up whenever we choose one course of action over another. Individual and Trade-offs ▫Choosing more time at work over going to a baseball game---or playing soccer over working a part time job. Business and Trade-offs ▫Farmers choose to plant broccoli over cauliflower. Society and Trade-offs ▫GUNS AND BUTTER- a country that chooses to produce more military goods (guns) has fewer resources to produce consumer goods (butter)… and vice versa. (Steel used to make a tank instead of dairy equipment.)

Opportunity Cost Opportunity cost- The most desirable alternative given up as the result of a decision. ▫A family that buys a computer cannot use the same money to pay for their second choice—going on a family vacation. ▫The farmer who chose to grow broccoli instead of cauliflower experienced the opportunity cost of planting cauliflower ▫The country that produced more “guns”, has less “butter” as their opportunity cost.

Thinking at the Margin Thinking at the Margin- when you decide how much more or less to do. This is not an “all or nothing” approach. OptionsBenefits Opportunity Cost 1 st hour of extra study time Grade of a C on test One hour of sleep 2 nd hour of extra study time Grade of a B on test 2 hours of sleep 3 rd hour of extra sleep time Grade of a B+ on test 3 hours of sleep

Opportunity Cost RANK THESE IN ORDER OF THE VACATION YOU WOULD CHOOSE. (first choice at top). Cabo San Lucas, Mexico—beach vacation Rome, Italy—European vacation Sydney, Australia—Australian vacation Breckenridge, Colorado—skiing vacation New York City, New York—city vacation