1. Opportunity Cost Value of the “next best alternative”
Concert or Mountain Climbing

2. You have $100 to spend at the mall, rank the following in the order (1, 2, 3) you would purchase them.
DVD set of a TV Show($60)
New outfit ($85)
New pair of shoes ($65)
WHAT IS #1?
WHAT IS YOUR OPPORTUNITY COST FOR #1?

3. HOW TO DECIDE?

4. The Decision-Making Model
1. List the alternatives
2. State the criteria

5. The Decision-Making Model
3. Evaluate the alternatives
a. Trade-off: the act of making the choice
b. Opportunity cost: the next best
alternative given up when individuals,
businesses, and governments confront
scarcity by making choices.

6. The Decision-Making Model
4. Make rational decisions
a. Marginal benefit: the extra benefit
b. Marginal cost: the extra cost
c. When marginal benefit is greater than the
cost, he marginal benefit should be obtained.
d. When the marginal benefit is less than the
marginal cost, the desired good is not worth
the cost and should not be obtained.

7. Rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.
Does the benefit exceed the cost?

8. Decision-Making Model
Benefits
Enjoy more sleep
Have more energy during the day
Better grade on test
Teacher and parental approval
Personal satisfaction
Decision
Sleep late
Wake up early to study for test
Opportunity cost
Extra study time
Extra sleep time
Benefits forgone
Wake up early to study
Alternatives
Karen’s Decision-making Grid

9. Summary Questions Explain the decision making model?
What is a trade-off?
What is the opportunity cost?
When the marginal ___________ is greater than the cost, the marginal benefit should be obtained.
When the marginal benefit is less than the marginal___________, the desired good is not worth the cost and should not be obtained.

10. Production Possibilities Frontier
When a company plots their opportunity costs and decides what is most profitable to produce

11. PPC A graph that shows the trade-off between two production options
A visual representation of OPPORTUNITY COSTS

12. PPC – an example 500 300 Suppose a country makes Pencils and Pens.
If they devoted ALL of their resources to pencils, they could make 500 a day
…..to pens, they could make 300 a day
500
300

13. PPC – an example
The country/business can produce anywhere on the line when they use ALL of their resources
500
Pencils
Pens
300

14. PPC – an example
If the country is producing ONLY pencils, and they want pens, they have to give up pencils.
500
450
Pencils
The more pens they want…..
200
Pens
125
200
300

15. PPC – an example Y
At point X, the country or business is producing below its possibilities and is INEFFICIENT
500
Pencils X
At point Y, the country or business is producing beyond its possibilities and is NON-SUSTAINABLE.
200
Pens 75
300

16. Graph this country’s PPC
After graphing, answer these questions:
Assume the country is currently producing 180 of food and 25 of computers. If the country wants to make 75 of computers, how many of food must they give up?
If the country was producing 150 of food and 30 of computers, what could you conclude about the country’s economy?
Food
Computers
200
180 25
150 50
100 75
110

17. Production Possibilities Frontier

18. If more computers are produced, less food is produced.

19. If more Food
is produced,
fewer computers
are produced

20. The Production Possibilities Curve
1. The production process takes inputs and uses them to produce outputs. Inputs include land, labor, capital, and entrepreneurs.
2. The PPF curve measures the maximum combination of two outputs that can be achieved from a given number of inputs. It demonstrates the trade-off among choices, given existing institutions, resources, and technologies.

21. 3. The curve slopes downward from left to right
3. The curve slopes downward from left to right. This represents the opportunity cost because you always have to give up some product A to get more product B.
4. The curve bowed out to represent the principle of increasing marginal opportunity cost: in order to get more of something, one must give up increasing quantities of something else.

22. 5. Point A, B, and C represents efficiency: achieving as much output as possible from a given number of inputs.
6. Point Y represents an unattainable point at the
moment because of limited resources or technology.
7. Point X represents an attainable point but undesirable.

23. Reasons for a shift
1. Technology
2. Resources

24. Draw these PPFs on your own paper
Choice
Steel
Food A
100 B 25 90 C 50 70 D 75 40
Choice
Steel
Food A
120 B 25
115 C 50
105 D 75 90 E
100 60 F
125

25. Draw these PPFs on your own paper
Choice
Guns
Flowers A
100 B 25 90 C 50 70 D
Choice
Econ Grade
Math Grade 1 80 2 65 50 3 30 75 4

27. Summary Questions What does A, B, and C represent on the PPF curve?
What does X represent on the PPF curve?
What does Y represent of the PPF curve?
What are the reasons for a shift in the PP curve?