The document discusses the concept of opportunity cost and how every economic decision involves a cost. It provides examples of difficult decisions between preserving environmental resources like desert tortoises and economic activities. It also discusses how decisions are made by narrowing alternatives down to two options - a choice and an opportunity cost which is the best alternative forgone. The document emphasizes that resources are limited and choices must be made to allocate those resources.

1. EVERY CHOICE HAS A COST
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2. Which are difficult economic
decisions?
Preserve the desert tortoise or preserve the
profits of a “greedy monopolistic land
grabbing developer?”
Preserve the desert tortoise or the stock
earnings of retired Mrs. McGillicudy who
owns stock in the “greedy monopolistic
land grabbing developer’s” company?
Preserve the desert tortoise or the Raven
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3. Difficult Decisions
Allocate Santa Catalina to Buffalo or native
plants
Allocate San Clemente to the endangered
Plover ( bird) or land owners
Allocate Mojave to environmentalists or
motorbikes
Northern forests to Spotted Owl or lumber
and resulting jobs
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4. Easy or difficult decisions?
Easy decisions are between goods and bads.
Most decisions are between two goods.
In the political arena, the decision is often
painted as good or bad, but that is not
usually the case.
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5. OPPORTUNITY COST
The Cost of a making a Choice
What will you (did you) need to give
up?
Perhaps the most important concept
in economics.
Things don’t have costs, choices do.
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6. Consider: what you choose to do
with “free” football tickets
Alternative 1 ~
Use the tickets yourself
Alternative 2 ~
Give the tickets to friends
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7. The decision regarding the “free” tickets
Alternative 1 ~
Use the tickets yourself
CHOICE
Alternative 2 ~
Give the tickets to friends OPPORTUNITY COST
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8. The results of the decision
Choice: The subjective evaluation of how
“attractive” the selected alternative is
Opportunity cost: the subjective evaluation
of the best alternative NOT selected
not what COULD have been done but what
WOULD have been done
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9. Consider: some new alternatives
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10. You could narrow the
alternatives down to two
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11. Identify the choice and the
opportunity cost
CHOICE OPPORTUNITY COST
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12. Consider: how to best use their human
capital on their 3 month anniversary?
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13. Consider: (some) Alternatives
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14. then they narrow these down to two
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15. Identify the Choice and the
Opportunity Cost
OPPORTUNITY
COST
CHOICE
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16. Consider: a “free” hike in the woods
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17. other “Choice” examples
Typing a term paper
“Free” parking
Resources for “free” early childhood
education
Resources for national defense
Reduced class size
Wildlife habitats
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18. Consider: Preserving the environment is costly.
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19. Economic Decisions are made with
incomplete information
Expectations can be erroneous
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20. Money
A way of exchanging personal resources for
goods and services
You work at California Pizza
You earn money
You use money to buy goods and services
You exchanged your human capital for goods
and services that you desired
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21. Money is a tool for transferring
resources and goods and services
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22. Money is a tool for transferring
resources and goods and services
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23. Money is a tool for transferring
resources and goods and services
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24. The Curse of the Crawling Camel
Clyde holds the record
It’s past the record
He sees his salvation
ahead
It is a mirage
There is no such thing as a
free lunch!
There is really no such
choice as a free choice!
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25. Stating economic choices have an
“opportunity cost” is the same
thing as stating scarce resources
have “alternative” uses.
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26. Opportunity Cost is defined as
the value of the best foregone
alternative at the time that you
make the decision.
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27. Consider: what does it cost you?
You have a
scholarship for full
tuition and all
books.
There are no money
costs to you.
Some say your
education is free.
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28. If you can’t do it, it’s not an opportunity cost!
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29. Opportunity cost is:
subjective
determined only by the decision-maker
Why are you watching television when you could be
outside on such a beautiful day?
• or playing video games
• or talking to your girlfriend or boyfriend
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30. RUSSIAN RESOURCES
land
human capital
OR
physical capital
entrepreneurship
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31. ECONOMICS
The study of
individual choices
concerning the use of limited resources
among competing wants
Wants, resources, choices
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32. ECONOMICS
Individuals, not groups
Finance is an application of economics
Economics can’t distinguish needs from
wants ~ needs have no alternatives and
therefore no choice and therefore there
are no economics
In economics, people rank their wants
according to their priorities.
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33. Which of the following is an opportunity cost?
a. A bad grade on a quiz because you didn’t study
b. Your mother’s hurt because you forgot her
birthday…….You Scum!
c. Not going out with your friends because you are
called in to work.
d. All of the above are opportunity costs.
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34. Why would an economist never say
“The best things in life are free?”
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35. Why would an economist never say
“We should preserve old growth
forests at all costs?”
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36. An economist would never say
“If it saves one life ~ whatever
the cost ~ it’s worth it” because
the statement ignores the concept
of [………………………]”
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37. What does it cost you?
You were in love.
You have been
married 30 years.
You are still in
love.
What does it cost
you?
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38. Main Points
People choose because resources are limited and
insufficient to fulfill their wants; people can’t
have everything they want.
It is easier to choose between goods and “bads”
than good and goods.
An economic decision involves using resources,
goods or services
Every economic decision involves a cost. There
is no such choice as a free choice.
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39. Main Points (continued ~ i)
Opportunity cost is subjective and can only be
identified by the decision maker.
When people make a decision, they narrow the
alternatives to two, select one (the choice) and
give one up (the opportunity cost).
Economics is the study of individual choices
concerning the use of limited resources among
competing wants.
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40. Main Points (continued ~ ii)
Money is a tool for transferring resources into
goods and services or exchanging one good or
service for another
Economics and finance are different. Economics
is about resources; economic reasoning can be
applied to finance.
In a study of economics, needs and wants can’t
be distinguished. Economic reasoning ranks
wants according to priorities.
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