Trade offs and Opportunity Cost

Trade OffsTrade Offs are “either/or” choices

which a person makes.

There are choices made every day which involve trade offs. Doing one thing means you give up doing something else.

http://www.youtube.com/watch?v=7geyX1Er1zs

Trade offs lead to “costs”When you make a trade off, you

give up something to get something else.

The next most desirable choice that you gave up is called the “opportunity cost”.

Learning Targets for Chapter 1:1. I can understand the concept of

scarcity and its role in decision-making. 2. I can identify and give real life

examples of the factors of production. 3. I can list and explain tradeoffs and

identify opportunity cost in personal decisions in order to make informed

choices.

Note-Learning target #3 is…3. I can list and explain

tradeoffs and identify opportunity cost in personal decisions in order to make informed choices.

Can you do this?

Identifying Trade OffsWrite down 3 examples of trade

offs from your own life.]What was the “opportunity cost”

of each?

Write down 3 examples of trade offs from current events.

What was the opportunity cost of each?

Marginal Cost/Marginal BenefitMarginal Cost is the additional

cost of using one more unit of a good or service.

Marginal Benefit is the additional satisfaction gained by using one more unit of a good or service.

Marginal Cost/Marginal BenefitExample: Fred decided to study one extra

hour for his test the next day. This cost him time watching his favorite zombie movie.

Fred scored a 93% on his test, up from an 79% on the previous test.

Cost Benefit AnalysisWeighing the costs against the

benefits.Basically- “Is it worth it?”

Using “marginal analysis” you can be more precise- weigh the extra cost against the extra benefit.