1. THE TRUE COST OF DECISIONS: OPPORTUNITY COST
Opportunity Cost and Tradeoffs Budgets and the Budget Line
Point out that with limited income people will have to choose a sandwich or pizza.
Review the term “marginal”
As students to explain why the movement from A to B above is a marginal decision.

2. SUNK COSTS
Sunk costs are costs that have been paid and cannot be recovered.
EXAMPLE: Going to see your favorite sports team and they lose…you cannot ask for a refund. It is a sunk cost.
Discuss with the class a product they’ve purchased and one year later were dissatisfied—that is sunk cost and cannot be recovered.

3. COMPARING BENEFITS & COSTS TO MAKE RATIONAL DECISIONS
A rational decision benefits the decision maker as much as possible. A self- interested individual makes decisions for his or her own benefit. Wearing a seat belt is an example of a rational decision.
What are examples of other rational decisions?

4. RATIONAL DECISION MAKING
The net benefit of a choice is the benefit of the choice (measured in dollars) minus the cost of the choice. This is how we approach “which one” questions.
Discussion:
Explain how dollars are used to measure satisfaction.
What makes one car better than the other? Be sure students recognize the net benefit idea.

5. MARGINAL ANALYSIS: DECIDING HOW MUCH?
Marginal benefit is the additional benefit of doing something one more time. Marginal cost is the additional cost of doing something one more time. This is how we approach “how much” questions.
DISCUSSION: Ask how net benefit sounds to them or their families. People say things like “its worth it” or “I’m glad we bought these”.

6. Marginal Analysis Simulation

7. 1A
Gargi Sean C Noah
Shaanti Neehar Henna
Katharine Allen Ryan
James Dexter Sean W
Matthew Devin Michelle
Chloe Tiffany Deeksha
Andrew, Obi, AJ

8. 2A
Katie Jack Taha
Erika Mia J Ben
Emily Meha Jack
Mia B Josh Ester
Jeeshan Sam Tarun
Eddie Alexandra Chris
Dylan, Thriaksh, Joel

9. 1B
Alexa Lauren Andrew
Amanda Eric Olivia
Thomas Maryam Andrew
Dominick Odhran Dean
Kelli Winston Audriti
Purab Tiara Christina
Fei Maggie
Yash, Kevin, Rohit

10. 2B
Amanda Arielle Bradley
Mansi Dolci Devanshu
Arnav Mason Maddie
Brianna Nathan Arya
Nikita Nidhi Neha
Dan Matthew Nivi

11. RATIONAL DECISION MAKING
Have the students take out a piece of paper and write the steps in the left margin list the components of a recent decision they made to purchase an item.

12. WHAT IS BEHAVIORAL ECONOMICS?
Behavioral economics is the branch of economics that uses ideas about decision making from psychology to explain economic behavior.
Ask students to explain this idea: Economics is a behavioral science not a technical skill like accounting.
What other consumer or firm behavior would economists most likely analyze?
Are holiday “door busters” really a great deal or a way to lure customers to a particular store? Holiday sales are analyzed by economists yearly.

13. MISTAKES MADE WHILE MAKING DECISIONS
1. Allowing the presentation or framing of options to affect decisions 2. Letting sunk costs matter 3. Being too impatient 4. Making errors due to overconfidence 5. Avoiding change even when things could be better 6. Devoting time and energy to punish people who treat them unfairly even when it is not in the punisher’s self- interest.
Ask the students as you advance through the slides to think of examples of a mistake they made when deciding to buy something.

14. MISTAKES PEOPLE MAKE
Now, after they have thought about example in the last slide, this is a great place to have students or you look online at a retailer. Look at product prices over $100 and challenge students to identify mistakes for buyers based on the table.

15. Mistakes in Decision Making Performances
As a table, create a 2 pg. script that describes a series of economic decisions which demonstrated two of the six mistakes previously shown.
The two mistakes which your group must depict will be drawn at random.
Presentations will be made to lead off the next class.
Share your constructions with me.
Skip one space between each actor’s line.
Have fun.

16. 1A
Gargi Sean C Noah
Shaanti Neehar Henna
Katharine Allen Ryan
James Dexter Sean W
Matthew Devin Michelle
Chloe Tiffany Deeksha
Andrew, Obi, AJ

17. 2A
Katie Jack Taha
Erika Mia J Ben
Emily Meha Jack
Mia B Josh Ester
Jeeshan Sam Tarun
Eddie Alexandra Chris
Dylan, Thriaksh, Joel

18. 1B
Alexa Lauren Andrew
Amanda Eric Olivia
Thomas Maryam Andrew
Dominick Odhran Dean
Kelli Winston Audriti
Purab Tiara Christina
Fei Maggie
Yash, Kevin, Rohit

19. 2B
Amanda Arielle Bradley
Mansi Dolci Devanshu
Arnav Mason Maddie
Brianna Nathan Arya
Nikita Nidhi Neha
Dan Matthew Nivi