Transcript Opportunity Cost - Westlake City Schools

INTRODUCTION TO
ECONOMICS
Chapter 1: What is Economics?
Section 1: Economics Vocabulary
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Economics: The study of how people seek to satisfy
their needs and wants by making choices
Need: Something essential for survival
Want: Something that people desire but that is not
necessary for survival
 Both
are influenced by culture, age, geographic region,
socioeconomic class, etc.
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Goods: The physical objects that someone produces
Services: The actions or activities that one person
performs for another
How the Economy Works
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Scarcity: The principle that limited amounts of goods
and services are available to me unlimited wants
 Scarcity
 Time,

always exists because resources are scarce
money, natural resources, water, etc.
Shortage: A situation in which consumers want more of
a good or service than producers are willing to make
available at a particular price
 Ex:
Musical chairs
Entrepreneurs: The 4th Factor of
Production

Entrepreneur: A person who decides how to combine
resources to create goods and services
 They
recognize a need or a want
 They must assemble the factors for production
necessary to fill the need/want

Venture Capitalists: Business people who provide
funding to entrepreneurs to starts new businesses
 https://www.kickstarter.com/
 Zuckerberg:
Who took the bigger risk?
Factors of Production

Factors of Production: The resources that are used to make
goods and services
Land: All natural resources used to produce goods and services
 Labor: The effort people devote to tasks for which they are
paid
 Capital: Any human-made resource that is used to produce
other goods and services

Physical Capital: Human-made objects used to create other goods
and services
 Human Capital: The knowledge and skills a worker gains through
education and experience
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Ex: Doctors
Benefits of Capital: More time, money and knowledge

Ex: Dishwasher
Section 2: Opportunity Cost
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Trade-off – an alternative we sacrifice when we make a
decision

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The act of giving up one benefit in order to gain another,
greater benefit
Types of Trade-offs
Individuals – we all make sacrifices to gain something else
 Businesses – decisions that impact the manner by which
resources are used in production
 Society – decisions that impact all in society such as foreign
and domestic spending and policy-making

What does it mean?
OPPORTUNITY

a chance,
especially one
that offers some
kind of
advantage
COST

to require the
payment of a
particular sum
Opportunity Cost

Opportunity Cost – an
alternative given up in
exchange for something else
 Depends
on the
individual/business/govt’s
priorities
 Can include time, money, and
experience
 What
do they value and what are
they willing to sacrifice?
 Ex: Sleep or study? (Grid pg. 10)
Guns or Butter?
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Guns or butter – a
phrase that refers to
the trade-off that
nations face
The decision between
producing military
goods (guns) or
consumer goods
(butter) with one’s
limited resources
Guns or butter Graph
What is the Opportunity Cost of…?
Personal
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Childbirth
Stay-at-home mom
Schooling
Home ownership
Vacation
Luxury Goods
College
Marriage
Car
Societal
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Education
Military
Foreign treaties
Road construction
School testing
Taxes
Healthcare
Marriage
Low-birth rates
Thinking at the Margin
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Thinking at the Margin - deciding to do or use one
additional unit of some resource
Decision-making becomes the cost/benefit analysis
 Not
just “all or nothing” but a compromise, the sweet
spot, varied degree of cost/benefit
 Ex:
Sacrifice only one hour of sleep to study
 Marginal
Cost: The extra cost of adding one unit
 Marginal Benefit: The extra benefit of adding one unit
What is a Production Possibilities Curve
(PPC)?
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A graph showing
alternative ways to use
an economy’s
productive resources
Where the axes meet
shows the amount of
output that axis can
create in the given
situation
Production Possibilities Frontier
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Production Possibilities
Frontier – the line on
the PPC that shows the
maximum, most
efficient output of
given resources
Can be shown in
various combinations
to illustrate a varied
output of those two
products
The Give and Take
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There is always a trade-off because of the
scarcity of the factors of production
We are seeking the most efficient use of all
resources to create the maximum amount of both
products
An Example Of Production Possibilities
Frontier
Your scarcity
of
resources is
one tree
An Example Of Production Possibilities
Frontier
You can
either make
3 boats with
the tree
An Example Of Production Possibilities
Frontier
Or the tree
can be
used to
make 6
chairs.
An Example Of Production Possibilities
Frontier
To yield a
combination of
both, the output
number of each
(boats and chairs)
will be
compromised from
its maximum
amount.
Maximum Output of Scarce Resources
Boats
Chairs
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3 boats

0 chairs
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2 boats

2 chairs
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1 boat

4 chairs
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0 boats
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6 chairs
Efficiency
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Efficiency – using resources in such a way as to
maximize the production of goods and services
 PPCs
can illustrate the opportunity cost of production
decisions

Underutilization – using fewer resources than an
economy is capable of using
 Any
point below the frontier would be considered
inefficient or underutilization
Efficiency versus Underutilization
Growth

PPC reflects current economic conditions
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But resource and technological availability is constantly
shifting
When this availability increases, it allows growth in the
economy=production capacity increase
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When availability of resources decreases, it causes
decline in the economy=production capacity decrease
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PPC frontier shifts to the right
PPC frontier shifts to the left
Factors that cause shifts in availability: aging population,
technological advances, migration and immigration of
people, natural resources, conservation, war and loss of
land, etc.
What is Cost? And Does it Always
Mean Money?
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Cost – is the alternative we give up when we choose
one option over another
Law of Increasing Costs –As we shift factors of
production from making one good or service to
another, the cost of producing the second item
increases
But why the increase? Some resources are better
suited to certain modes of production than others
 Less
efficient use of resources for a certain product
causes increase in cost

Ex: Watermelon vs. Shoes-not enough high quality farm land
Future Entrepreneurs

If you were to start a business, what would it be?

What need or want do you think needs to be filled in society
or in Westlake specifically?
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What demographic are you selling to? Who is your target group?
How will you advertise to this group?
What skills do you have that lend well to the business?
 What factors of production would you need?
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What level of investment do you need? Start-up costs?
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Land, labor, physical capital, human capital, etc.
Kickstarter or venture capitalists?
Write a short business plan addressing all of these questions
with your group!
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Store, product, service, entertainment activity-something you wish
existed in Westlake!
Franchises: Is it for you?
Subway
Radio Shack
A&W Restaurants
Century 21 Real Estate
International House of Pancakes
Embassy Suites Hotels
Anytime Fitness
Hampton by Hilton
Jack in the Box
Jimmy John’s
Denny’s
Pizza Hut
7-Eleven
Dunkin Donuts
Taco Bell
McDonald’s
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Pick one of these franchises and
determine the following for your
choices:
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The pros and cons of buying into
a franchise.
Consider the opportunity costs
that are associated with it.
What forms of capital will you
need to get started?
What resources do you have at
your disposal?
What are your long term gains
and loses?