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Opportunity Costs - PowerPoint PPT Presentation


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Opportunity Costs. Scarcity & Opportunity Cost. Because of scarcity, we must make choices With any choice, there are costs & benefits. The Big Idea. Opportunity Cost is the value of any alternative that you must give up when you make a choice. It is the value of the opportunity lost.

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Presentation Transcript
scarcity opportunity cost
Scarcity & Opportunity Cost
  • Because of scarcity, we must make choices
  • With any choice, there are costs & benefits
the big idea
The Big Idea
  • Opportunity Cost is the value of any alternative that you must give up when you make a choice.
  • It is the value of the opportunity lost
comparative vs absolute advantage
Comparative vs. Absolute Advantage
  • Comparative Advantage: The ability to produce something at a lower opportunity cost than other producers
  • Absolute Advantage: The ability to produce something using fewer resources than other producers
what this means for companies countries
What this means for companies & countries?
  • An individual, firm or country with the lowest opportunity cost of producing a good should specialize in that good
examples
Examples
  • Books or Movies
  • Should LeBron James cut his own lawn?
lebron
LeBron
  • LeBron James is both a great basketball player (who chokes at times) and a great lawn mower. However, LeBron has a young neighbor named Scotty who is willing to mow his lawn.
  • LeBron can mow his lawn in two hours. He could also film a Nike commercial in two hours and make $10,000. So, James' opportunity cost is???
  • Neighbor Scotty can mow LeBron's lawn in four hours. He could also work at McDonald's for four hours and make $8 per hour. So, Scotty's opportunity cost of mowing LeBron's lawn is ???
big s
Big ?’s
  • Who has an absolute advantage?
  • Who has a comparative advantage?
  • Should LeBron & Scotty make a trade? Can both benefit from the trade?
other examples of this
Other examples of this:
  • We should specialize in what we're good at and trade with others for other things we want. Such a rule explains why:
  • 1. We generally don't grow our own food.
  • 2. Basketball or football players often specialize in one position as opposed to playing all of them.
  • 3. Your teacher may teach economics, history, and government but likely does not also teach physical education and chemistry.
big picture s
Big picture ?’s
  • Should a country produce everything it wants?
  • If Country A is better than Country B at producing everything, would Country A gain anything by trading with Country B?
  • When a new home is built, why doesn’t one contractor do everything?