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Economics 1-3:
ESSENTIAL QUESTION: What is the relationship between trade-offs and opportunity costs?
GPS STANDARD:
SSEF2-
a.) Illustrate by means of a production possibilities curve the trade-offs between two economic choices
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Trade-Offs and Opportunity Cost
• The process of making a choice is not always easy. Services are work performed for someone and are intangible.
• Because resources are scarce, consumers need to make wise choices.
• To become a good decision maker, you need to know how to identify the problem and then analyze your alternatives.
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Trade-Offs and Opportunity Cost
• Finally, you have to make your choice in a way that carefully considers the costs and benefits of each possibility.
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Trade-Offs and Opportunity Cost
• Trade-offs are the alternative choices people face in making an economic decision. A decision-making grid
lists the advantages and disadvantages of each choice.
• Opportunity cost is the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice.
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Trade-Offs and Opportunity Cost
• Opportunity cost is the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice.
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Trade-Offs and Opportunity Cost
• Why do you think economists believe opportunity cost is an important factor to consider in addition to monetary cost?
• The money, time, or resources given up when one choice is made rather than another are just as important as the monetary cost of the choice that was made.
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Economics of SeinfeldEconomics of Seinfeld
http://yadayadayadaecon.com/clip/84/
http://yadayadayadaecon.com/clip/9/
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Production Possibilities
The production possibilities frontier diagram illustrates the concept of opportunity cost.
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Production Possibilities
It shows the combinations of goods and/or services that can be produced when all productive resources are used.
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Production Possibilities
The line on the graph represents the full potential—the frontier—when the economy employs all of these productive resources.
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Production Possibilities
•Identifying possible alternatives allows an economy to examine how it can best put its limited resources into production.
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Production Possibilities
•Considering different ways to fully employ its resources allows an economy to analyze the combination of goods and services that leads to maximum output.
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Production Possibilities
•An economy pays a high cost if any of it resources are idle. It cannot produce on its frontier and it will fail to reach its full production potential.
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Production Possibilities
GUNS OR BUTTER?
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Production Possibilities
•Economic growth made possible by more resources, a larger labor force, new technology or increased productivity causes a new frontier for the economy.
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Production Possibilities
With a larger labor force, more goods and services are created; newly discovered natural resources open up new products and services.
How might economic growth stimulate greater production possibilities?