Chapter 1 What is Economics - PowerPoint by wxp19831


									Chapter 1: What is Economics

 Section 2: Opportunity Costs
#1: Describe why every decision involves trade-
• Trade-off: an alternative that we sacrifice when we
  make a decision.
• Guns and butter: a phrase that refers to trade-offs
  that nations face when choosing whether to produce
  more of less military or consumer goods.
#2: Explain the concept of opportunity costs

• Rule: an opportunity costs is the most
  desirable alternative given up as a result of a
  – Here’s how:
     • 1. Rank your choices
     • 2. Pick the one you want.
     • 3. What is your #2 choice? This is your opportunity
  – Examples-three hours of free time. Choices?
  – $20.
#3 Explain how people make decisions by
thinking “at the margin.”
•   Adding or subtracting one more/less unit
•   Cost/Benefit analysis
•   Page 11

      Options                 Benefit                 Opportunity Cost
      Options                      Benefit          Opportunity Cost

      1st hour of extra       Grade of C on test      One hour of sleep
      Study time
      2nd hour of extra       Grade of B on test       Two hours of sleep
      Study time
      3d hour of extra        Grade of B+ on test      Three hours of sleep
      Study time

Examples: hiring a worker, making another product

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