Every Choice Has a Cost
There is no such choice
as a free choice
Objectives
• Recognize that every decision has one
choice and one cost
• Identify the opportunity cost of different
choices
Student affective objectives
After you teach this lesson, students will:
• Identify the opportunity cost of a choice
before making a decision
• Eliminate the word “free” from their
vocabulary
The results of the decision
• Choice: The subjective evaluation of the
selected alternative
• 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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OPPORTUNITY COST
The Cost of a Choice
• What will you give up when you
made a decision?.
• Perhaps the most important
concept in economics; what
separates economic thinking
from all other ways of thinking.
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A Truism
• When people choose between two
alternatives, they select one and give up
the other.
Hamburger or Spicy Chicken?
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You want them both but can
have only one.
• You choose the spicy chicken.
• The cost of the choice is the hamburger;
you gave it up!
Hamburger or Spicy Chicken?
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The Truism Repeated
• Every time we make a decision, we
choose one thing and give up
something else.
• There is no such choice as a free
choice.
• Things don’t have costs; choices do.
Opportunity Cost
• Opportunity cost is the subjective value
of the best alternative NOT selected when
making a decision.
• It is what the decision maker WOULD
have done, not all of the things that
COULD have been done.
• It is the best opportunity that the decision
maker gave up.
Economic Decisions are made
with incomplete information
Expectations can be erroneous
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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!
• Or, more precisely, there is
no such choice as a free
choice.
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Stating that economic
choices have an opportunity
cost is the same thing as
stating that scarce
resources have
alternative uses.
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Opportunity cost is the value
of the best foregone
alternative
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at the time that
you make the
decision.
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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.
• What would you be doing with your
scarce human capital if you weren’t
pursuing an education? That is the
cost of your education.
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There is no such choice
as a free choice.
If you can’t do it, it’s not
opportunity cost!
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Opportunity cost is:
• subjective
• determined only by the decision-maker
– Why are you watching television, you could be
outside on such a beautiful day?
• TV
• Video games
• Talking to your girl/boy friend
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To identify opportunity cost
• What is the good or resource that is
being used?
• What were the two best alternative uses
of the good or resource?
• What was selected?
• What was given up?
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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Why would an economist
never say, “The best things in
life are free?”
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Why would an economist
never say, “We should
preserve old growth forests at
all costs?”
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An economist would never
say, “If it saves one life, it’s
worth it,” because it ignores
the concept of
……………………….”
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What does it cost
you?
You were in love.
You have been
married 30 years.
You are still in
love.
What has it cost
you?
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Main Points
• People choose because resources are limited
and insufficient to achieve all of their goals;
people can’t have everything they want.
• 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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Main Points
• 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).
• In a study of economics, needs and wants
can’t be distinguished. Economic reasoning
ranks goals according to priorities.
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