To Choose or Not to Choose- Opportunity Cost 2

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					    Todd recently purchased his own car on credit. He
    works at a part-time job at an auto-wrecking firm
    to earn the money he needs to make payments on
    his new car. Lately, his work in school has declined.
    When his teacher asked him if he was studying for
    the test, he replied, “Not really. I’d like to study
    more, but I have no choice. I’ve got to keep
    working on my car loan.”

   Did Tom have a choice?
   Does Tom have alternatives in addition to reducing
    his study time?
   Have you ever been in a situation in which you felt
    like you had no choice?
   Even in tough situations, there are
    alternatives
   When there seem to be none, it is usually
    because the alternatives in question come
    with such great costs that they are given no
    consideration

   Economic assumption- people choose
   People have several alternatives (possible
    actions to take) in any given situation

   Economic-decision making involves analyzing
    the benefits (what you gain) and costs (what
    you give up) of any decision- called cost-
    benefit analysis
   Ashley desperately wanted to attend a
    concert with her friends. Unfortunately, she
    could not get a ticket for the night on which
    her friends were going to the concert. She
    said she had no choice but to stay home with
    her family and watch TV.

   What choices did Ashley actually have?
Alternatives          Possible Costs       Possible Benefits
Stay home and watch   Miss the concert     Watch TV with family
TV
Go to concert alone   Less enjoyment/not   Enjoy the concert
                      sharing the same
                      experience
Study/homework        Less exciting than   Improve school
                      concert              performance




 • What other alternatives did Ashley have?
 • Which one would you have chosen?
   Complete choice grids for examples 2 and 3

   Put a check next to the alternative you would
    choose
   In any decision, the alternatives you give up
    are called trade-offs
   In any decision, the best alternative you give
    up is called the opportunity cost
   Every choice involves costs

   What was the opportunity cost for example 2?
    Example 3?
   All choices are economic choices because
    they involve costs
   The costs, or what you must give up, are
    trade-offs
   The highest valued alternative is your
    opportunity cost
   Choices can be affected by incentives and an
    individual’s utility
   Costs and benefits change over time
   Economists rely on statistics and data to
    study and understand economic issues
   Develop economic models to represent
    complex ideas
    ◦   Graphs
    ◦   Charts
    ◦   Tables
    ◦   Generalizations
   Production possibilities frontier (or curve)- a
    graph showing the maximum number of
    goods and services that can be produced with
    limited resources

   PPF assumes
    ◦   Resources are fixed
    ◦   All resources are fully employed
    ◦   Only two things can be produced
    ◦   Technology is fixed
   Imagine there is a bakery that has the
    resources to make two things: bread and
    muffins
   PPC shows the different possibilities/
    combinations that can be made
           Loaves of Bread     Muffins
                 12              0
                 10              35
                 7               63
                 4               84
                 0              100
   PPF= all a company’s present production
    possibilities as if all resources are fixed
   But resources change
   More resources and increased productivity
    (more efficient use of resources) can cause a
    company to be able to produce more goods
   Results in an outward shift (shift to the right)
    of the PPF
   Economists use various types of models to
    represent economic data and ideas
   View that data through different lenses
    ◦ Microeconomics- study of behavior of individual
      players in an economy
    ◦ Macroeconomics- study of the behavior of the
      economy as a whole
    ◦ Positive economics- describing economics as it is
    ◦ Normative- describing economic behavior as it
      ought to be

				
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