Topic 1.2 Opportunity Cost Notes

1.2 Opportunity Cost

Trade-off – An alternative that we sacrifice when we make a decision

EX: Having a part-time job might prevent one from playing on the football team. A farmer who plants cherry trees cannot also grow apples on the same land.

Guns or Butter – A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods.

EX: Resources are limited! Steel being produced could be used to make tanks or butter factories.

Opportunity Cost – The most desirable alternative given up as the result of a decision.

EX: The opportunity cost of spending your savings on a computer is not being able to go on a trip.



Which would use choose?
-Sleep late or wake up early to go on vacation to Cancun?
-Sleep late or wake up early to eat breakfast?
-Sleep late or wake up early to study for a test?

Questions
1. What are some possible things you going to do after school today? List three examples that illustrate how decisions involve trade-offs.

2. Suppose that you can save $50 by buying your car in a different city. If the trip requires only $10 in gasoline, is the trip worthwhile? Why or why not? (Consider other factors beside money)

3. Determine an opportunity cost for each of the following. (a) eating pizza; (b) going to see a movie on a Tuesday; (c) going to see a movie on a Saturday; (4) watching television.