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    1.3 Economic Choices and Decision Making

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    MissDang
    1. The document discusses opportunity costs and production possibilities frontiers. 2. It defines opportunity cost as the next best alternative forgone when choosing one option over another. 3. It explains that production possibilities frontiers illustrate opportunity costs by showing the maximum combinations of two goods an economy can produce with limited resources, and that increasing production of one good requires reducing production of the other.

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    1.3 Economic Choices and Decision Making

    Uploaded by

    MissDang
    223 views10 pages
    1. The document discusses opportunity costs and production possibilities frontiers. 2. It defines opportunity cost as the next best alternative forgone when choosing one option over another. 3. It explains that production possibilities frontiers illustrate opportunity costs by showing the maximum combinations of two goods an economy can produce with limited resources, and that increasing production of one good requires reducing production of the other.

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    1. The document discusses opportunity costs and production possibilities frontiers. 2. It defines opportunity cost as the next best alternative forgone when choosing one option over another. 3. It explains that production possibilities frontiers illustrate opportunity costs by showing the maximum combinations of two goods an economy can produce with limited resources, and that increasing production of one good requires reducing production of the other.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    223 views10 pages

    1.3 Economic Choices and Decision Making

    Uploaded by

    MissDang
    1. The document discusses opportunity costs and production possibilities frontiers. 2. It defines opportunity cost as the next best alternative forgone when choosing one option over another. 3. It explains that production possibilities frontiers illustrate opportunity costs by showing the maximum combinations of two goods an economy can produce with limited resources, and that increasing production of one good requires reducing production of the other.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 10

    1.

    3 Economic Choices and Decision Making


    Today we will cover: 1. Opportunity Costs 2. Production Possibilities Frontier

    Trade-Offs

    Because people cannot have everything they want, they face TRADE-OFFS, or alternative choices, when spending their income or time. Discussion Questions: What are some trade-offs that you face? What are the costs of those trade-offs?

    Opportunity Cost

    Cost often means more than the price tag placed on a good or service . Cost can also be thought of in terms of OPPORTUNITY COST-the cost of the next best alternative use of money, time, or resources when one choice is made rather than another. Discussion Questions: What is the opportunity cost of you being here, today, now at school?

    Opportunity costs are opportunities LOST.

    The NEXT BEST alternative like choosing between two similar options. EXAMPLE:

    You have $100 for one day at either:

    Production Possibilities Frontier


    To illustrate opportunity cost, economists uses the PPF. Diagram shows the choices society must make in deciding how to use its relatively scarce resources.

    IN ORDER TO LIMIT THE VARIABLES INVOLVED SO THAT THE MODEL IS EASIER TO DEAL WITH, TWO ASSUMPTIONS ARE MADE:

    (1) the amount of available resources and technology will not change during the period being studied. (2) all the natural, human, and capital resources are being used in the most efficient manner possible. (maximum efficiency)

    PPF:

    Shows the combination of resources to make two products The curve/arc itself represents the most efficient combination of resources Point A = anything inside the curve is NOT efficient, but IS possible Point B = anything outside the curve is NOT possible with the resources at this time

    Using the PPF to figure out Opportunity Costs:

    You decide to increase your wine production from 9 units of wine to 14 units of wine. What is your OPPORTUNITY COST for increasing wine production? (what you gave up)

    GRAPH IT!

    MACHINES 1 unit = 10,000 Machines 0 1 2 3 4 5 6

    GRAIN 1 unit = 50,000 Bushels 30 28 25 21 15 8 0

    What is your opportunity cost if you increase your machines from 3 units to 5 units? How about increasing 1 unit to 2 units of machines?

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