1. Trade-offs
Chapter 1 Section 2

2. Learning Objectives
You will be able to understand the relationship between trade-offs and opportunity costs and how production possibilities curve can help make informed economic choices

3. Trade-offs
Main Idea: economic decisions always involve trade-offs that have costs
Trade-off: exchanging one thing for another
If you choose to buy the new I-phone 6s you are exchanging your income (money) for the phone
Individuals, families, businesses and societies are forced to make trade-offs every time they use their resource in one particular way
Cost of trade-offs: what you give up in order to get or do something.
When you decide to study economics for one hour, you are giving up any other activities (YOUR TIME)

4. Costs of trade-offs
This cost is called an opportunity cost (the value of the next best alternative that had to be given up to do what chose)
When you make a trade-off (you ALWAYS made trade-offs) you lose something. What do you lose? The next best thing=opportunity cost
You have $100 to spend and you want either a new pair of shoes or a sports jersey. You decide to buy the shoes (AIR FORCE ONES)
TRADE-OFF= ANY other item you could have bought
OPPORTUNITY COST= The sports jersey (next best alternative)

5. Opportunity Costs/Production Possibilities Curve
Being aware of trade-offs and their resulting opportunity costs is vital in making economic decisions (from a personal level to government level)
Businesses must consider trade-offs every day. Either invest funds or hire workers
A production possibilities curve shows the maximum combination of goods and services that can be produced with a given amount of resources.
This curve helps determine how much of each item to produce, revealing the trade- offs and opportunity costs involved in each decision.

6. Question (PP 18)
Use the graph on pp 18 and answer the following question
If a nation wanted to produce $5 billion in civilian goods, what would be the approximate cost in military goods?

7. In a trade-off, opportunity cost is the value of the _____.
A) factors of production
B) scarce resources
C) action that was chosen
D) next best alternative

8. In a trade-off, opportunity cost is the value of the _____.
A) factors of production
B) scarce resources
C) action that was chosen
D) next best alternative

9. Which of the following is defined as a graph showing the maximal combinations of goods and services that can be produced from a fixed amount of resources in a given period of time?
A) Trade-off
B) Opportunity cost
C) Production possibilities curve (or frontier)
D) Guns versus butter

10. Which of the following is defined as a graph showing the maximal combinations of goods and services that can be produced from a fixed amount of resources in a given period of time?
A) Trade-off
B) Opportunity cost
C) Production possibilities curve (or frontier)
D) Guns versus butter