Friday, August 17, 2018

1. Friday, August 17, 2018 • Objective: Students will be able to explain the concept of opportunity costs. • Purpose: Opportunity cost is one of the things we need to consider before making economic decisions.

2. Warm Up: Making Decisions “Guns versus butter” has come back in vogue politically. “Guns” basically means spending on security concerns (military defense needs) as opposed to welfare pursuits or “butter” (education, hospitals, housing, schools, etc.). The choice for nations isn’t usually either “guns” or “butter” but rather how many guns and how much butter . . . . But the question remains: How many guns are necessary to maintain a high level of security for the U.S., and how much butter can the nation afford without hurting guns and vice versa? Read the quotation. What does a nation gain when it chooses to spend more on its military? What does that nation give up?

3. Land and Labor • Land: all natural resources, including oil, water, air, timber, animals, and minerals • Found in nature with a fixed supply (cannot be renewed) • What are some examples of “land”? • Labor: any human effort, physical or mental, that goes into producing goods and services, including marketing, distribution, and selling

4. Capital • Capital: any human-made resource that is used to create other goods and services • Physical Capital: All human-made goods that are used to make other goods and services • Human Capital: Skills and knowledge gained by a worker through education and experience

6. Even though this woman has an abundance of sandwich ingredients, scarcity still exists here. The land, labor, and capital resources used to produce these ingredients are all scarce.

7. People who choose to volunteer face the cost of giving up their time but have the benefit of knowing that they are helping others or improving their community.

9. Trade Offs • Trade-offs: alternatives that we sacrifice when we make a decision • Each decision we make involves trade-offs • The decisions that businesspeople make about how to use land, labor, and capital resources also create trade-offs

10. Trade Offs • Individual Trade-offs: • Each decision we make involves trade-offs. • i.e. If you choose to spend more time at work, you give up watching a movie, spending time with friends, and etc. • Business Trade-offs: • The decisions that businesspeople make about how to use land, labor, and capital resources also create trade-offs. • i.e. Farmers who plant broccoli cannot use that land to grow potatoes.

11. Like many important choices, the decision to go to college involves trade-offs. As college costs have become more expensive, those trade-offs have become harder for many students.

12. Trade-Offs • Society and Trade-offs: • Countries also make decisions that involve trade-offs. Economists simplify their explanations of the trade-offs countries face by using the example of guns and butter. • In short, the more butter that a country produces, the fewer guns that the country can produce. • This also works vice-versa.

13. Opportunity Cost • Usually one alternative is more desirable for a country/business/individual than another. • Opportunity Cost: The MOST DESIRABLE alternative given up as the result of a decision is called the Opportunity Cost.

16. Opportunity Cost • If I gave you a choice between these four candy bars… • A B C D • Which one would you choose? • Which one (s) would be your opportunity costs?

17. Opportunity Cost • IF I gave you a choice between the following… • Sleep Late or wake up early for a ski trip? • Sleep late or wake up early to eat breakfast? • Sleep late or wake up early to study for your Economics test? • Which one would you choose? • Which one would be your opportunity cost?

18. Cost/Benefit Analysis • Before making decisions, individuals and businesses need to examine the costs (bad things) and the benefits (good things) about their choices • This can take some time, but helps with the usage of the scarce amount of time we all have

19. Businesses analyze their marginal costs when making decisions about production. As long as the marginal benefit is greater than the marginal cost, this manufacturer will produce more toys.

20. Karen decides to wake up two hours earlier to study with the expectation of raising her grade to a B. Do you agree with that decision? Why or why not?

21. Summary Synthesis Two students are trying to decide the best way to spend their time after school. They are both considering working, joining a sports team, or using the time for more studying. Each student can choose only one of those options. • Student A: This student is having trouble evaluating the trade-offs the decision entails. Write down several questions you could ask the student to help him evaluate his options. • Student B: This student plans on going to college. Good grades are important to her, and so is saving money to pay for school. Her grades are falling in some classes, so she decides to devote more time to studying. What was her opportunity cost? Do you think she made a good decision? Explain.