Opportunity Cost Trade

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					Opportunity Cost
• Trade-offs- All the alternatives that we give up
  whenever we choose one course of action over
• Individual and Trade-offs
  ▫ Choosing more time at work over going to a baseball
    game---or playing soccer over working a part time job.
• Business and Trade-offs
  ▫ Farmers choose to plant broccoli over cauliflower.
• Society and Trade-offs
  ▫ GUNS AND BUTTER- a country that chooses to
    produce more military goods (guns) has fewer
    resources to produce consumer goods (butter)… and
    vice versa. (Steel used to make a tank instead of dairy
Opportunity Cost
• Opportunity cost- The most desirable
  alternative given up as the result of a decision.
  ▫ A family that buys a computer cannot use the
    same money to pay for their second choice—going
    on a family vacation.
  ▫ The farmer who chose to grow broccoli instead of
    cauliflower experienced the opportunity cost of
    planting cauliflower
  ▫ The country that produced more “guns”, has less
    “butter” as their opportunity cost.
Thinking at the Margin
• Thinking at the Margin- when you decide
  how much more or less to do.
• This is not an “all or nothing” approach.
  Options             Benefits              Cost
1st hour of extra   Grade of a C on    One hour of sleep
study time          test
2nd hour of extra   Grade of a B on    2 hours of sleep
study time          test
3rd hour of extra   Grade of a B+ on   3 hours of sleep
sleep time          test
Opportunity Cost
  YOU WOULD CHOOSE. (first choice at top).

•   Cabo San Lucas, Mexico—beach vacation
•   Rome, Italy—European vacation
•   Sydney, Australia—Australian vacation
•   Breckenridge, Colorado—skiing vacation
•   New York City, New York—city vacation