Transcript Trade-Offs & Opportunity Costs

Chapter 1
What is Economics?
Section 2
Trade-Offs and Opportunity Costs
Trade-Offs and Opportunity Costs
Isn’t this the meaning and
scope of economics???
Trade-Offs and Opportunity
Costs
Trade-Offs Among
Alternatives
O Because resources are
scarce, people can’t have
everything they want.
O Therefore, they face trade-offs
(alternative choices about
spending their time or
income)
Each trade-off had
advantages and
disadvantages
O How do you decide? A
decision making grid!
O
Opportunity Cost
O Economists view cost as
an opportunity cost
(Choosing the next best
thing or alternative when
considering the use of
money, time, or
resources).
O http://www.youtube.com
/watch?v=q1n4yiPPKSw
Trade-Offs and Opportunity
Costs
O To determine what will be gained or lost in your personal life, a
business, or in a economy, economist implement a production
possibilities frontier (a diagram of goods and services , two at
a time, that an economy can produce at full-strength).
O Look at pg. 16 in your books at The Production Possibilities
Frontier (PPF).
O
Some things to think about:
O On the graph labeled “A” what could make the quantity of guns rise
and the butter to stay the same?
O On the graph labeled “B”, what does it mean when the caption
reads, “When all resources are not fully used, a country cannot
reach its potential.”?
O
What are some hypothetical possibilities on why the production of
butter went down 200 units, but the gun manufacturer did not
suffer any lack in production.
O How does our nation’s drop-out rate affect the PPF?
Production Possibilities Frontier
Each Unit x 10,000
--------------------------------------
60
50
Guns
40
30
20
-----------------------------------------------
10
0
0
10
20
30
40
Butter
50
60
70