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Rank these in order of preference...

1. Ticket to see your favourite band

2. A new pair of jeans

6. Sony Blue Ray player

3. Ipod Nano 4. Canon 60D SLR camera

5. A quality watch

7. A new pair of trainers

8. A new mobile phone

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Making Decisions

Mr Tarn

GCSE ECONOMICS: UNIT 11

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Aims of today’s lesson …

• Understand the basic economic problem

• Identify and analyse the concept of opportunity cost

• Understand the costs and benefits of making decisions

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Why do we have to make ‘Choices’?

• All economic questions and problems arise from the problem of scarcity

• Economics assumes people do not have the resources, income and time (i.e. they are scarce) to satisfy all of their wants and needs

• Therefore, we must make choices about how to allocate those limited resources

• We make decisions about how to spend our money and use our time

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What is meant by ‘opportunity cost’?

Q. How many cans of pop can you buy instead of one movie ticket?

A. Ten

R. How many packets of chewing gum can you buy instead of one can of pop?

S. Two

Q. If you buy four packs of gum, how many cans of pop could you have bought?

A. Two

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What is meant by ‘opportunity cost’?

• In order to buy a movie ticket, you need to give up a certain amount of gum and pop

• If you buy 20 packets of gum you give up going to the movie or buying pop

• Decisions therefore involve trade offs where a CHOICE has to be made

• When you make a choice, you give up an opportunity to do something else

• The highest-valued alternative you give up (i.e. your second choice) is called the OPPORTUNITY COST of your decision

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What is meant by ‘opportunity cost’?

• 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 pop

• If you are a sodaholic, you have to give up five sodas

• If you are gum fanatic, you surrender twenty packs of gum

• But, the opportunity cost of a movie is not five sodas and twenty packs of gum; it is five sodas OR twenty packs of gum.

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Over to you...

• Open and compete the document called...

“Opportunity Cost Questions”

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Costs and Benefits

• Already in this lesson, we have come across a number of decisions involving opportunity costs

• A teenager’s decision to spend £30 going out with friends, perhaps to the cinema, or to buy a new outfit (top and pair of jeans) would involve weighing up the benefits of enjoying a good night out against the cost of not being able to buy the new garment

• What do you think are the COSTS and BENEFITS of going out with friends, with the opportunity cost of buying an outfit?

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Costs and Benefits of going out...

• Benefits of going out:– enjoying a good night– enjoying the company of friends– avoiding offending friends by refusing to go out, and so on

• Costs of going out:– the enjoyment would only last for a single evening, whereas clothes

would last for several months– a teenager might worry about reaction of friends if they felt their

clothes were ‘un-cool’– the ‘feel-good’ factor from wearing new clothes would be lost

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Over to you...

• Open and compete the document called...

“Making Decisions”

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Video case study...

• Watch the clip on ‘Opportunity Cost’

• Despite the Americanisms it is quite effective at explaining

what Opportunity Cost is

Opportunity Cost

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Extension Task: Hidden Costs?

• What are the cost implications associated with a mobile

phone?

• Try Mobile Mayhem to find out!

Mobile Mayhem