• 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- 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
▫ 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
• RANK THESE IN ORDER OF THE VACATION
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