TradeOffs and Opportunity Costs

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Trade-Offs and Opportunity Costs
CHOICES!
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Trade-Offs

• Because people cannot have everything they want,
  they face trade-offs, or alternative choices.

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Opportunity Cost

• People often think of cost in terms of dollars.
• To an economist, however, cost often means more
  than the price tag placed on a good or service.
• Opportunity cost is the cost of what you give up
  when one choice is made over another.
• This could mean money, time, or resources either
  now or in the future.

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Decision-Making

• Choices are not always easy to make.
• A decision-making grid is one way to approach
  difficult problems.

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Decision-Making

• This grid summarizes a decision by Jessie to
  spend a 50 gift the best way possible.

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Production Possibilities Frontier

• The Production Possibilities Frontier is a
  diagram representing various combinations of
  goods and services an economy can produce when
  all productive resources are fully employed.

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Production Possibilities Frontier
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Decision-Making

• Creating a decision-making grid.
• Problem Sandys part-time job earns her only
  25 income a week. This week her expenses are
  especially heavy. She wants to go to a rock
  concert, which will cost her 25. Her friend
  Rafaels birthday is also this week, and the
  present she wants to buy him costs 25. In
  addition, Sandys car needs a brake repair, which
  costs 100. If Sandy pays for the first 25 of
  repairs, her dad will pay the remaining 75.

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Decision-Making

• Assignment Create your own decision-making
  grid.
• Problem Image you must spend 50.
• Make a list of four to five alternatives from
  which you could choose.
• State the criteria you feel are most important in
  helping you judge the alternatives you have
  listed.
• Use the decision-making grid to evaluate each
  alternative.
• Make your decision
• State the opportunity cost of your decision.