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Opportunitycost

The document explains the concept of opportunity cost, which is the value of the next best alternative that is sacrificed when making a choice. It also discusses incentives as motivators for decision-making and introduces the idea of trade-offs, illustrated through examples like Mr. A's choices between studying and socializing. Additionally, it touches on cost-benefit analysis and the production possibilities curve as tools for evaluating decisions.

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Nikita Kapoor
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21 views26 pages

Opportunitycost

The document explains the concept of opportunity cost, which is the value of the next best alternative that is sacrificed when making a choice. It also discusses incentives as motivators for decision-making and introduces the idea of trade-offs, illustrated through examples like Mr. A's choices between studying and socializing. Additionally, it touches on cost-benefit analysis and the production possibilities curve as tools for evaluating decisions.

Uploaded by

Nikita Kapoor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Opportunity Cost

Decision making
Opportunity Cost
To an economist, cost is the cost
of what you give up when one
choice is made over another.
This is known as “opportunity
cost.”
This could mean money, time, or
resources either now or in the
future.
Opportunity Cost
The highest-valued, next-best
alternative that must be sacrificed to
obtain something or to satisfy a want
Opportunity Cost Example
For example, if you are given $20 and
you choose to go to the movies and
spend that $20. Your Opportunity Cost
would be everything else that you
could’ve done with that $20… like
a) Buy candy
b) Buy McDonalds
c) Save the money
Opportunity Cost
Questions
What is the opportunity cost of
attending this economics class?
What is the opportunity cost of
attending a concert by your favorite
band?
Opportunity Cost
Create your own example of
opportunity cost.
Incentives
Incentives are methods used to
encourage people to take certain
actions.
They can also be benefits offered
to encourage people to act in
certain ways.
Grades in school, Wages,
Praise/Recognition, etc.
Examples of Incentives
Grades in school
Wages paid to workers
Praise and recognition
Cost-benefit analysis- is an
approach that weighs the
benefits of an action against
its costs.
Economize- To make
decisions according to the
best combination of costs and
benefits.
Trade-Off
Is the alternative option
people give up when they
make choices.
Usually trade-offs do not
require all-or-nothing choices.
Trade-off/Opportunity Cost
Example
Mr.A is failing Economics. He has
an Economics test next Monday.
He hasn’t gone to tutorials after
school because he’s been
hanging out with his friend Mr.B
instead.
Trade-off/Opportunity Cost
Example
Mr. A has 6 hours of “free
time” after school every day
this week.
Mr. A and his decisions…
Mr. A has to make decisions
according to the best
combination of costs and
benefits. In other words, Mr. A
has to _________.
Mr. A’s Cost-benefit Analysis
If Mr. A chooses to study instead
of hang out with Mr. B, he’ll pass
the test.
If Mr. A doesn’t hang out with Mr.
B, he’ll talk to someone else,
make friends instead.
Mr. A’s Cost-benefit Analysis
continued…

If Mr. A chooses not to study,


he’ll fail the test.
If Mr. A chooses to hang out
with Mr. B, he’ll stay with him.
Incentives?
What is Mr. A ’s incentive
for studying?
What is Mr. A ’s incentive
for hanging out with Mr. B?
Opportunity Cost?
If Mr. A chooses to hang
out with Mr. B, what would
be the opportunity cost?
Trade-off example
What would be an
example of a trade-
off?
Decision Making Grid
Make your own…
Make your own decision making
grid based on classes you want to
take in college…
Underutilization- Means
producing fewer goods and
services than possible.
Efficiency- Involves producing
the maximum amount of
goods and services possible.
How to represent opportunity
cost?
• The production
possibilities curve
(PPC) represents all
possible maximum
combinations of total
output that could
be produced.
PPC - Studying
Production Possibilities Table
 If you decided to make 35 muffins, how
many loaves of bread could you make?
 What is the opportunity cost of making the
7 loaves of bread?
Guns vs. Butter
• “Guns vs. Butter” was a major issue during the
presidency of Lyndon B. Johnson, 36th president of the
United States in the 1960s. “Great Society” program
called for a “war on poverty.” This required the
government funding of many social reforms.
• An expanding war in Vietnam saw these government
funds being switched from domestic programs,
“butter”, to defense spending, “guns”.
• The opportunity cost of increasing defense
production was that the social programs could not be
funded.

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