NAME___________________________________
PER____________________
UNIT 1: WHAT IS ECONOMICS?
OPPORTUNITY COSTS TASK
In this lesson you will define opportunity cost, determine the
opportunity cost and trade-offs for certain decisions, and select
criteria important for decision making.
All economic questions and problems arise from scarcity.
Economics assumes people do not have the resources do satisfy all
of their wants. Therefore, we must make choices about how to
allocate those resources. We make decisions about how to spend
our money and use our time.
Let's say you have five dollars. What would you like to spend it on? There are a million things you would love to
spend five bucks on, but let's imagine there are only three things out there you really want to buy: gum, soda, and
movie tickets. Look at the price chart below and answer the questions.
What would you spend your five dollars on?
1.
2. What would you be willing to give up? Why?
Good
Price
Gum
$ .50
Soda
$1.00
Movie Ticket
$5.00
5.
3. How many sodas can you buy instead of one
movie ticket?
4. How many pieces of gum can you buy instead of
one soda?
If you buy four pieces of gum, how many sodas could you have bought?
In order to buy a movie, you need to give up a certain amount of gum and soda. If you buy ten pieces of gum, you
give up going to the movie or buying soda. Decisions involve trade offs. When you make a choice, you give up an
opportunity to do something else. The highest-valued alternative you give up is the opportunity cost of your
decision. Opportunity cost is the highest-valued forgone activity. It is not all the possible things you
have given up.
For example, if you go to the movies you have to give up a certain amount of gum and soda. If you are a sodaholic,
you have to give up five sodas. If you are gum fanatic, you surrender ten packs of gum. But, the opportunity cost of a
movie is not five sodas and ten packs of gum. It is five sodas or ten packs of gum.
All kinds of decisions involve opportunity costs, not just ones about how to spend your money. For example, if you
have soccer practice when your favorite television show is on, part of the opportunity cost of soccer practice is
missing that television show. When you made the choice to join a soccer team, you had to trade-off missing that
television show for becoming a better player.
EXETENSION ACTIVITY (START NOW, COMPLETE FOR HOMEWORK)
You won a radio station contest and you are now $300 dollars richer. You decide to spend all the money on a single
item of your choice…
Answer the following questions on loose leaf in paragraph form:
1) What are the 3 goods or services you are considering buying? 2) Which one will you buy and why? 3) What is your
opportunity cost? 4) How will the marginal benefit derived from this item change over time? (is the good or
service you purchased useful one time, or is it something that lasts?) How do you know?
Standard you will be graded on… (use as a checklist to success!)
E.12.1.2:
4
___Explains opportunity cost and marginal
benefit by thoroughly answering all parts of the
questions
__Uses details, specific examples, AND the key
terms in explanation
____Includes colorful picture that illustrates choice and opportunity cost 3
___Explains opportunity cost and marginal
benefit by thoroughly answering most parts of the
questions
__ Uses details, specific examples, OR the key
terms in explanation
____Includes colorful picture that illustrates choice and/or opportunity cost 2 ___Vague explanation of opportunity cost and
marginal benefit by thoroughly answering most
parts of the questions
__May not accurately use ALL the key terms in
explanation
____Includes a picture that illustrates choice or opportunity cost 1 ___Missing explanation of opportunity cost and
marginal benefit
___Does not thoroughly answering most parts of
the questions
__Does not accurately use ALL the key terms in
explanation and/ or have picture