Transcript Opportunity Cost

Vocabulary
 Variable Cost- Costs that change depending on how
many products are produced.
 Fixed Cost- Costs that stay the same no matter how
many products are produced.
 Incentive- Rewards or penalties people receive for
engaging in more or less of an activity.
 Marginal Cost- Cost of producing 1 more unit of
output.
Warm Up
 What happens to the cost of an item when it is scarce?
 Why is it that we must make economic choices?
 What is a trade off?
 Explain how to identify opportunity cost?
 What is a benefit in regard to economic decision making?
 What is the goal of producers?
 What is the goal of consumers?
 How do producers come up with a price?
 What businesses or industries are is the State of NC
known?
 What kinds of things do producers have to pay for?
Think of the Factors of Production to help yourself
answer the question.
Answer Me! Oh, please won’t someone
answer me!
1.
Items that are scarce will likely be which of the
following?
A.
B.
C.
D.
Cheap
Expensive
A renewable natural resource
An opportunity cost
Opportunity Cost
 In order to run a business producers must meet the
costs of the factors of production.
Immediate Gratification
 Products (whether it is a
need or a want) provide
people with immediate
gratification.

People receive immediate
benefits from purchasing
the product.
Costs
 Variable costs

Costs that vary when the amount of
products produced changes.

Water, ice, sugar, and lemons ($60)
 Fixed costs

Costs that do not change regardless of
how many goods are produced

Lemon squeezer, several large
pitchers, a stirring spoon, a cooler to
keep the lemonade cool, and the
lemonade stand itself. ($80)
 Total costs


Variable costs + fixed costs = total cost
Total cost = $140
Why do producers decide to sell something?
 To make money
 This is called an Incentive
Incentives motivate
producers and consumers
to take action
 Ex: A producers sells
something to make money,
an incentive for a
consumer to take an
economic action would be
a sale…Ex: 50% off

 A producer will always have an
incentive to sell one more unit
if the cost of one more unit is
less than the price of one more
unit.
 Marginal Costs
Cost of producing 1 additional
unit of output. Suppose total
cost to produce 120 glasses of
lemonade is $140, and $140.50
to produce 121 glasses of
lemonade. The marginal cost
is…
 .50 cents

Incentives
 Marginal benefit
 The amount of benefit that you get from selling more or less.
 Your benefit can go down if you sell more…let’s see how
In order to see you must create a cost-benefit analysis graph
 To create a graph you must compare the marginal costs and
marginal benefits of your decision.


A cost-benefit analysis is an example of a economic model
Do you remember what the problem is with economic models?
 Based on assumptions

Wages & Salary
 Wages

Payments made by producers
in exchange for one’s labor
and time for the production of
goods and services.

Generally tied to amount of
hrs. worked
 Salary

A set amount that the
producer agrees to pay a
laborer that is not tied to
hours or specific production.
reflection
 What is the difference between variable costs and





fixed costs?
What is the goal of producers?
What is the incentive for producers to sell?
What is marginal cost?
What is the name of the economic model that
compares the marginal costs and marginal
benefits?
What is the problem with cost benefit analysis?
Activity
 Pair up and go to the following website:
 http://www.econedlink.org/lessons/index.cfm?lesson=EM260
Activity
 Create your own business.
 After you have created your business plan and incentives
answer the following questions on a separate sheet of
paper:
1.
2.
3.
Why is it better to have more positive “green” than negative
“red” incentives in your business plan?
How might this help your business to succeed?
How might it be different to be motivated by negative
incentives than positive incentives?
 Partner with another group and discuss which incentives
would be most effective and which would not. Write your
names and responses on the separate sheet of paper and
hand it in.
Closing?
 What is an incentive?