1. Opportunity Cost
Chapter 1

2. Every time we choose to do something, we give up the opportunity to do something else

3. Trade-offs
The act of giving up one benefit in order to gain another, greater benefit
Individuals, businesses, and large groups of people, including governments, make decisions that involve trade-offs
Money, property, time, values, enjoyment, job satisfaction, or feeling of well-being

4. Individual trade-offs
At every stage of life, you have to make trade- offs

5. Business trade-offs
Decisions that businesses make about how to use their factors of production involve trade-offs

6. Government trade-offs
National, state, and local governments also make decisions that have trade-offs
“Guns or Butter”—decision to spend money on military or domestic needs

7. Why do we have trade-offs
Scarcity

8. Determining opportunity costs
The most desirable alternative somebody gives up as the result of a decision is the opportunity cost

9. Choosing is refusing We always face opportunity costs
When we select one alternative, we must sacrifice at least one other alternative and its benefits

10. Thinking at the margin
When economists look at a decision, they point out one more characteristic in addition to opportunity cost
Many decisions involve adding or subtracting one unit
One hour
One dollar
When you decide how much more or less to do, you are thinking at the margin

11. Folding a paper
The question is, how many folds is the best number for fitting easily into your pocket and laying flat once in your pocket

12. Cost/benefit analysis
Decision makers have to compare the opportunity costs and the benefits
What they will sacrifice and what they will gain
The decision-making process is called cost/benefit analysis
Weigh marginal costs against marginal benefits
Marginal cost—extra cost of adding one unit
Marginal benefit—extra benefit of adding one unit
As long as the marginal benefit exceed the marginal costs, it pays to add more units