1.2 Opportunity Cost

Essential Question:How do we make decisions incorporating

tradeoffs and opportunity costs in our daily lives?

Economic Choice

Incentives: Encourage a

particular choice

Utility: benefit (satisfaction) derived from that choice

Economizing: Balancing costs and benefits of

choiceTrade-offs:

choice alternatives;

opportunity costs

Opportunity Cost

“It’s much easier for me to make major life, multi-million dollar decisions, than it is to decide on a carpet for my front porch.”

~ Oprah Winfrey

What makes some decisions easy and some more difficult?

Cost – Benefit AnalysisMoney Time Where will I

live?Family/ Friends

Goals(Long term/ Short term)

Work Full Time

2-yr College(Full time)

4-yr College (Full time)

Work part-time; School part-time

Cost – Benefit Analysis

• Write a paragraph in which you analyze your data from your decision-making grid. Include the following– Write one or two sentences that summarize the

trade-offs you will have to make as you consider what you will do after high school.

– Write one or two sentences that describes your opportunity cost.

– Write a concluding sentence or two stating your decision.

Discussion

• What incentives and utility did you consider in making your decision?

• How does your choice represent the best mix of costs and benefits for you?

• How does this exercise represent the idea that there is “no such thing as a free lunch”?

Marginal Cost (how much would it cost you to get the next degree?)

Marginal Benefit (How much satisfaction would you receive by adding an additional degree?)

High School diploma $668/week

Training Program (1-year or less)

$741/week Est. $1,500- $3,000

2-year degree (Associate’s) $792/week 3,347

4- year degree (Bachelor’s) $1,101/week 9,139

Master’s degree (typically 2 years past Bachelor’s)

$1,326/week 15,000 (based on 30 credit hours at $500/credit hour)

Doctoral/Professional (at least 8 years total)

$1,600/week Est. 45,000 (from Capella)

Marginal cost and benefit from adding more education