1. Bell ringer: Cost vs. Benefit analysis
Write down the average annual salary for your preferred profession.
Add up the tuition of your preferred college x4. If you do not have a preferred college do 15,000 x 4.
Add up a salary of 600 x 52 (This is if you were making $15 an hour and working a 40 hour a week job)
What are the benefits of going to college? What is your opportunity cost?
What are the benefits of working straight out of high school? What is your opportunity cost?
Based on the benefits which is the best choice for you?

2. Agenda/objectives Cost vs. Benefits Analysis
Opportunity cost = Explicit cost + implicit cost
Goods and service
Shortage vs. Scarcity
Law of Diminishing Utility

3. Cost vs. Benefits analysis
Mr. Burns Case Study:
Before college I wanted to be an electrician. I would work full time while being paid to go to school (electrical school is 5 years).
I decided after about a year of the electrical trade that I wanted to go to college and become a teacher.

4. Electrical school vs. College
1st year $14 an hour, $560, $29,120
2nd year $16 an hour, $640, $33,280
3rd year $20 an hour, $800, $41,600
4th year $25 an hour, $1,000, $52,000
5th year $30 an hour, $1,200, $62,400
Completion of school - $38 an hour,$1,520, $79,040
Given up = $218,400
Tuition + room and board = $28,000
1st year NOVA – $3,500
$28,000 x 4 = $112,000
$112,000+$3,500 = $115,500
Starting salary 1st year $52, 600

5. Cost vs. Benefit Benefit Cost In a profession I love
Can help and serve others
Experiences from school
Experiences outside of where I grew up
New friends from outside of where I grew up
If I did better in high school – Scholarship
State school vs. out of state
Did 2 years at NOVA instead of 1 year. ($28,000 - $3,500 = $24,500)
Debt vs income ($115,500 vs. $218,400)

6. Conclusion As far as life it is not always about monetary gains.
As far as an economic decision I made a poor choice.
If I would have made better decisions earlier in life I could have saved myself some of the debt that I have now.
You don’t have to go to college to live a comfortable living but many opportunities come from college and it depends on your profession.

7. Utility, rationality, self-interest
Utility defined as the satisfaction or pleasure one gains from consuming a product or service or from taking an action.
Rationality – assumption that people know what their preferences are and act in their self-interest

8. Opportunity cost – Explicit and Implicit cost
Explicit cost – Something you pay or what you pay for a good or service.
Implicit cost – Something that you forego/give up or what you give up by making a given choice.
Opportunity cost = Explicit cost + implicit cost =
Explicit cost 115,500 + Implicit cost $218,400 = $333,900
What is your opportunity cost?

9. Review
Bill has two choices. He can go to the movies with his friends of he can pick up an extra shift at work. The price of the movie ticket is $11. If he picks up the extra shift at work, he will make an extra $40. Bill decides to go to the movies.
What is the Explicit cost?
What is the Implicit cost?
What is the opportunity cost of this decision?
Explicit + Implicit = Opportunity cost

10. Review
Jane is deciding whether to work over spring break or go to Florida for vacation with her friends. If she works, she will earn $300. The cost of going to Florida for a week is $ What is the opportunity cost of going to Florida?
$800

11. Review
Ed is deciding between playing video games for 2 hours and mowing the lawn for $20. He decides to play video games. What is the opportunity cost of this decision?
$20

12. Review
Bill has the chance to pick up an extra shift at work. However, his friends want to go to the movies. If he picks up the extra shift, he will earn $60. The cost of the movie and popcorn is $15. What is the opportunity cost of going to the movies with his friends?
$75

13. Review
Judi is making a decision about her future. She is deciding whether she wants to go to college or not. The cost of a four-year degree is $100,000. If she gets a job right out of high school, she can earn $25,000/year. What is the opportunity cost of getting the four- year degree? (if she does not work during college)?
$200,000

14. Review
Judi decides to go to college. What is the benefit of this decision?
Future Earnings

15. Review
Steve is deciding between reading a book and taking a nap. He nobly decides to enrich his mind by reading the book. What is the opportunity cost of this decision?
Gives up the nap

16. Economic Decision Making

17. Goods and services Goods Services Physical objects produced for sale.
i.e. paper, pencil, desk, shoes, cell phones, clothing, etc.…
Activities done for us by others. Some even offer these services at no charge
i.e. teachers, movers, waiters, hair stylist, nurses, etc.…

18. How are Goods and services scarce?
Resources needed to produce them – land, labor, materials and machines are scarce.

19. Why is what we want scarce?
Our wants are unlimited (think of a kid watching commercials “I want that”)
Our means of obtaining our wants are very limited.

20. Some wants are necessary for survival

21. Other wants are for enjoyment

22. Shortage vs. scarcity
Shortage: A lack of something that is desired, a condition that occurs when there is less of a good or service available than people want at the current price.
Lil Wayne starts wearing skinny jeans – Many young people buy skinny jeans due to the fad. Production (supply) of skinny jeans cannot keep up with the demand for them.
Shortage is temporary.

23. Shortage vs. scarcity Wars and natural disasters can cause shortages.
Think about what is going on right now with the Hurricane. What is there a shortage of in many areas of Texas?

24. Shortage vs. scarcity
Shortages ends once production is resumed and new sources of supply are found.
Scarcity is forever, no matter how well people use their limited resources, there will never be enough of everything to satisfy all of their wants.

25. Natural resources vary in their abundance
Perpetual resources: Widely available and in no danger of being used up.
i.e. Sunlight and wind

26. Natural resources vary in their abundance
Renewable Resources are resources that, with careful planning, can be replaced as they are used.
i.e. forest, fresh water, fish.
Recyclables such as metal can be used again.

27. Natural resources vary in their abundance
Nonrenewable resources once they are used, they are gone forever.
i.e. fossil fuels like oil, coal, and natural gas.

28. Natural resources vary in their abundance
The value of natural resources depends on someone knowing how to plug them into the production process.
i.e. vast pools of oil have lain under ground but until someone (entrepreneur) developed the tools and technology needed to extract that oil from underground and turn it into a useful fuel. It went from little value to very valuable.

29. Marginal utility
The extra satisfaction or pleasure you will get from an increase of one additional unit of a good or service.
- The amount of satisfaction usually depends on the amount of something we already have.
i.e. You go for a long run on a summer day – you get home and have a cold Gatorade or ice water in the fridge.
The first glass will have high level of utility, the second glass while still satisfying will have less utility.
By the fifth glass you drink so much you hurt your stomach resulting in negative utility.

30. Law of diminishing marginal utility
According to this law, as the quantity of a good is consumed increases, the marginal utility of each additional utility of each additional unit decreases.

31. Review
Hurricane takes out oil refineries off of the Gulf of Mexico and there is less gas that is being produced.
Shortage

32. review
Lumber company takes efforts to regrow trees after being cut down. Renewable resource

33. Review
You pay movers to move your belongings into your house.
Service

34. Ipencil