Opportunity Cost
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The Opportunity Cost Emilio Porta Pallais [email protected]
The Economic Problem ■
Scarcity: limited resources to meet infinite needs ◆
If we could satisfy all of our needs, there would be no need for economics
◆
In paradise, there are no economists…
■
We have to choose between alternatives because of scarcity of resources: we can’t have everything we want.
■
The opportunity cost of an item is the value of the best alternative that we sacrifice when we obtain the item.
The Economic Problem Examples: ■
The opportunity cost of a chocolate
■
The opportunity cost of being here
■
The opportunity cost of building a hospital or a school.
Production Possibilities Frontier
Production Possibilities Frontier “The curve shows the maximum combinations of products that a country can produce utilizing existing resources.” Illustrates what we have to sacrifice in order to obtain something. Coconuts A
18 17
B C
14
H
D
I
9
E 0
1
2
3
4 Lobsters
Production Possibilities Frontier Coconuts A
20 18
B C
15
H
D
I
9
E 0
5
10
15
20 Lobsters
Production Possibilities Frontier Y
Effect of technology and learning
Coconuts A
20 18
B C
15
W
D
I
9
Z
E 0
5
10
15
20 Lobsters
Quantifying the sacrifice Price of drinks $1, Price of the movie $5, Price of admission $10
12
s knr D
10
0; 10
8
6 1; 5 4
2
0
2; 0 0
0,5
1
1,5
2
2,5
Movie
Quantifying the sacrifice Price of drinks $1, Price of the movie $5, Price of admission $5
s kni r D
12
10
0; 10
8
6 0; 5
1; 5
4
2
0
1; 0 0
0,5
1
2; 0 1,5
2
2,5
Movie
Quantifying the sacrifice Price of drinks $2, Price of the movie $5, Admission $10
12
s kni r D
10
0; 10
8
6 0; 5
1; 5
4 1; 2,5
2
0
2; 0 0
0,5
1
1,5
2
2,5
Movie
Reflection: Right to education and health ■
What does it mean?
■
How is it affected by scarcity?
■
How operationalize the exercise of this right?
We have to choose!!!! The Three Basic Questions ■
What to produce? ◆
■
How? ◆ ◆ ◆ ◆ ◆
■
Example: Should completion of secondary school be a central objective? How much are we willing to sacrifice to achieve this objective? Combination of resources (or supplies) and technology to produce the different goods Size of courses and institutions? What level of private enrollments? Use of ITC Textbooks, curriculum, etc.
For whom? ◆ ◆
Who will be the consumers of the goods we are producing? If everyone does not have access to primary or tertiary education, how do we decide whom to assist?
The Economic Problem ■
Scarcity: limited resources to meet infinite needs ◆
If we could satisfy all of our needs, there would be no need for economics
◆
In paradise, there are no economists…
■
We have to choose between alternatives because of scarcity of resources: we can’t have everything we want.
■
The opportunity cost of an item is the value of the best alternative that we sacrifice when we obtain the item.
The Economic Problem Examples: ■
The opportunity cost of a chocolate
■
The opportunity cost of being here
■
The opportunity cost of building a hospital or a school.
Production Possibilities Frontier
Production Possibilities Frontier “The curve shows the maximum combinations of products that a country can produce utilizing existing resources.” Illustrates what we have to sacrifice in order to obtain something. Coconuts A
18 17
B C
14
H
D
I
9
E 0
1
2
3
4 Lobsters
Production Possibilities Frontier Coconuts A
20 18
B C
15
H
D
I
9
E 0
5
10
15
20 Lobsters
Production Possibilities Frontier Y
Effect of technology and learning
Coconuts A
20 18
B C
15
W
D
I
9
Z
E 0
5
10
15
20 Lobsters
Quantifying the sacrifice Price of drinks $1, Price of the movie $5, Price of admission $10
12
s knr D
10
0; 10
8
6 1; 5 4
2
0
2; 0 0
0,5
1
1,5
2
2,5
Movie
Quantifying the sacrifice Price of drinks $1, Price of the movie $5, Price of admission $5
s kni r D
12
10
0; 10
8
6 0; 5
1; 5
4
2
0
1; 0 0
0,5
1
2; 0 1,5
2
2,5
Movie
Quantifying the sacrifice Price of drinks $2, Price of the movie $5, Admission $10
12
s kni r D
10
0; 10
8
6 0; 5
1; 5
4 1; 2,5
2
0
2; 0 0
0,5
1
1,5
2
2,5
Movie
Reflection: Right to education and health ■
What does it mean?
■
How is it affected by scarcity?
■
How operationalize the exercise of this right?
We have to choose!!!! The Three Basic Questions ■
What to produce? ◆
■
How? ◆ ◆ ◆ ◆ ◆
■
Example: Should completion of secondary school be a central objective? How much are we willing to sacrifice to achieve this objective? Combination of resources (or supplies) and technology to produce the different goods Size of courses and institutions? What level of private enrollments? Use of ITC Textbooks, curriculum, etc.
For whom? ◆ ◆
Who will be the consumers of the goods we are producing? If everyone does not have access to primary or tertiary education, how do we decide whom to assist?
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