Economic Choices and Decision Making TradeOffs and Opportunity

Economic Choices and Decision Making

Trade-Offs and Opportunity Cost • Process of making a choice is not easy. • Individuals, businesses, and government agencies try to satisfy their needs and wants by allocating scarce resources. • A good decision maker knows how to identify the problem, analyze alternatives, and make a good choice on how to allocate resources.

Trade-offs- alternatives that must be given up when one is chosen rather than another. Decision-Making Grid-help you determine some of the opportunity costs for your decision. The cost of something goes beyond the cost in dollars.

Opportunity Cost- The cost of the next best alternative use of money, time, or resources when one choice is made rather than another. For example, you spend your money on ten new CDs, instead of saving the money for a new car. The cost of the CDs is not just the price of them, but also the car you could have had.

Production Possibilities Frontier-diagram representing various combinations of goods and/or service an economy can produce when all productive resources are fully employed.

Production Possibilities All points on the curve Represent maximum combinations of output G u n s Point E means There are idle resources Butter Can’t get to Point D It is beyond production Possibilities-can get there by change in technology