EVERY CHOICE HAS A COST.

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EVERY CHOICE HAS A COST.
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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
  developers company?
• Preserve the desert tortoise or the Raven

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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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Easy or difficult

• 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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OPPORTUNITY COST The Cost of a Choice

• What will you (did you) give up?
• Perhaps the most important concept in economics.
• Things dont have costs, choices do.

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The free tickets
Alternative 1 Use the tickets yourself
Alternative 2 Give the tickets to friends
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The free tickets
Alternative 1 Use the tickets yourself
Alternative 2 Give the tickets to friends
CHOICE
OPPORTUNITY COST
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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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Some alternatives
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Narrow the alternatives to two
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Identify the choice and the opportunity cost
OPPORTUNITY COST
CHOICE
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How to best use their human capital on their 3
month anniversary?
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Some Alternatives
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Narrow it down to two
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Identify the Choice and the Opportunity Cost
OPPORTUNITY COST
CHOICE
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A free hike in the woods
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Other 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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Preserving the environment is costly.
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Economic Decisions are made with incomplete
information

• Expectations can be erroneous

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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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Money is a tool for transferring resources and
goods and services
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Money is a tool for transferring resources and
goods and services
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Money is a tool for transferring resources and
goods and services
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The Curse of the Crawling Camel

• Clyde holds the record
• Its 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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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

• 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.

Diploma from CSUSB
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If you cant do it, its 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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RUSSIAN RESOURCES

• land
• human capital
• physical capital
• entrepreneurship

OR
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ECONOMICS

• The study of
• individual choices
• concerning the use of limited resources
• among competing wants
• Wants, resources, choices

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ECONOMICS

• Individuals, not groups
• Finance is an application of economics
• Economics cant distinguish needs from wants
  needs have no alternatives, therefore no choice,
  therefore no economics
• In economics, people rank their wants according
  to their priorities.

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Which of the following is an opportunity cost?

• a. A bad grade on a quiz because you didnt
  study
• Your mothers 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, its 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 does it cost you?

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Main Points

• People choose because resources are limited and
  insufficient to fulfill their wants people cant
  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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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).
• Economics is the study of individual choices
  concerning the use of limited resources among
  competing wants.

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Main Points

• 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 cant be
  distinguished. Economic reasoning ranks wants
  according to priorities.

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The Best Things in Life
Are NOT Free!