What is trade off and opportunity cost
The reality of scarcity is the conceptual foundation of economics. Like many academic disciplines, economics has its own language, in which the definition and usage of familiar terms — like scarcity — differ from those of everyday speech, and even from one discipline to another. This lesson develops the definition and implications of living in a world of relative scarcity in which people must choose between alternative sets of benefits.
Further, it introduces the Production Possibilities Frontier, a visual model of the costs and benefits of choosing one alternative over another. Students will understand that: Productive resources are limited. Therefore, people cannot have all the goods and services they want; as a result, they must choose some things and give up others. Effective decision making requires comparing the additional costs of alternatives with the additional benefits.
Most choices involve doing a little more or a little less of something; few choices are all-or-nothing decisions. Different methods can be used to allocate goods and services. People, acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services. Students will be able to use this knowledge to: Evaluate different methods of allocating goods and services by comparing the benefits and costs of each method.
Handouts and Supplemental Materials. What could you be doing instead of being here for this session? List your alternatives here. What is the Opportunity Cost for a high school student to study one hour for Economics? What will what is trade off and opportunity cost your students?
We will continue the what is trade off and opportunity cost of Adam and Eve in a later session. Economics builds on ideas! Scarcity is the condition of not being able to have all of the goods and services one wants. It exists because human wants for goods and services exceed the quantity of goods and services that can be produced using all available resources. Like individual, governments and societies experience scarcity. Choices involve trading off the expected value of one opportunity against the expected value of its best alternative.
The evaluation of choices and opportunity costs is subjective; such evaluations differ across individuals and societies. Marginal benefit is the change what is trade off and opportunity cost total benefit resulting from an action.
Marginal cost is the change what is trade off and opportunity cost total cost resulting from an action. As long as the marginal benefit of an activity exceeds the marginal cost, people are better off doing more of it; when the marginal cost exceeds the marginal benefit, they are better off doing less of it. Scarcity requires the use of some distribution method, whether the method is selected explicitly or not.
Comparing the benefits and costs of different allocation methods in order to choose the method that is most appropriate for some specific problem can result in more effective allocations and a more effective overall allocation. Define scarcity as the fundamental economic condition, and provide examples of the importance and implications of relative scarcity.
Develop the logic that leads from scarcity to the necessity of choice. Illustrate how the economic condition forces everyone — consumers and producers — to make choices. Discuss how societies devise different systems of allocation to systematically address the necessity of choice. Demonstrate the subjectivity of distinctions between needs and wants.
Discuss how allocation systems help people make choices. Illustrate the concepts of trade offs what is trade off and opportunity cost opportunity cost. Introduce and practice the production possibility frontier model of trade-off and opportunity cost.
Introduce marginal decision making. Illustrate and explain how economists distinguish between good choices and poor what is trade off and opportunity cost. Ask and answer the question: We live in a world of relative scarcity.
Scarcity exists when resources have more than one valuable use. Scarcity exists even in the midst of abundance. Scarcity forces people to choose between alternatives. People choose purposefully from the alternatives they perceive. Scarcity is dealt with more effectively by recognizing that the distinction between needs and wants is subjective.
Societies have adopted a variety of allocation systems to deal with scarcity. The opportunity cost of choosing one alternative is the value given up by not taking advantage of the next best alternative. To choose is to refuse: Good decision-making occurs at the margin. We seldom make all-or-nothing decisions; everyday life is an exercise in marginal decision-making.
Decisions to continue or discontinue an activity are made by weighing the additional expected benefits against the additional expected what is trade off and opportunity cost. The PPF Production Possibility Frontier models the trade-offs and opportunity costs that necessarily accompany decision-making in the face of scarcity.
Scarcity is more of a problem for the poor. People face scarcity; governments do not. Producers make choices differently than consumers.
We can have more without giving up anything. Good decision-making means being able to distinguish between good and bad alternatives. Sometimes, you just have no choice. Once a choice is made people must stick to it. The value of an education is an exclusive personal benefit.
Economic choice making principles work better for western societies. How can something be scarce and not in short supply at the same time?
How can it be that rich people face as much scarcity as poor people do? Does finding more productive resources make things less scarce? Why, in economic terms, is the price of a good or service different than its cost? How can you give up something you never had in the first place? Is the production possibility curve ever a straight line? Classroom Activity Options Distribute and discuss the article entitled Scarcity.
Bring in an item to use for the simulation — a large cinnamon roll for a morning class, or a gourmet chocolate bar for an afternoon class — something you know many students will want. Give them 5 minutes to work in groups of 2 or 3 to brainstorm and list as many ways to distribute the item as possible.
Re-convene the large group and, in round-robin fashion, list distribution methods on the overhead or whiteboard, until no new ways are proposed. Do not allow discussion during this time, only the listing of the distribution types. Group the list items into standard categories of allocation systems: Once this exercise is completed, tell students they now have the knowledge they need to make an informed decision and that they will get one vote each to determine how the item will be distributed.
Distribute the item as selected by the class. Then, tell the class that what they just did is reflective of economies throughout the world. Assign the students with the task of identifying the cost to them of each of the following choices: For each choice, identify the next-best alternative.
First choice of the morning: Get up when the alarm goes off. Turn off the alarm and go back to sleep. Second choice of the morning: Go back to bed.
Emphasize that the value of the next-best alternative is the opportunity cost of each decision. Ask students if they will stay in school until graduation. Ask them what could make them change their minds — either from what is trade off and opportunity cost to no, or from no to yes.
Emphasize that deciding whether or not to keep coming to school is a marginal decision. Each day, students weight the expected additional costs and expected additional benefits of going to school again, and if those expected additional costs or benefits change, then their decision about staying in school until graduation may change.
Display the big pencil and discuss all of the choices that must be made and by whom in order to produce it. Identify the productive resource categories and why what is trade off and opportunity cost are scarce.
Introduce the incentives that cause the pencil to be produced. Obtain a two pan balance and use this prop to visually reinforce the decision-making process of weighing expected costs with expected benefits.
Distribute practice PPF problems for students to work on individually or in small groups. Ask students to generate original PPF examples demonstrating trade-offs and opportunity costs from their what is trade off and opportunity cost lives. Ask students to discuss the question of how an understanding of opportunity cost could change their own lives. The Tampa Tribune, April 7, Most economic concepts are repetitive and used in a variety of application as we build the economic way of thinking Know the key concepts very well!
A trade-off or tradeoff is a situational decision that involves diminishing or losing one quality, quantity or property of a set or design in return for gains in other aspects. In simple terms, a tradeoff is where one thing increases and another must decrease.
Tradeoffs stem from limitations of many origins, including simple physics - for instance, only a certain volume of objects can fit into a given space, so a full container must remove some items in order to accept any more, and vessels can carry a few large items or multiple small items.
Tradeoffs also commonly refer to different configurations of what is trade off and opportunity cost single item, such as the tuning of strings on a guitar to enable different notes to be played, as well as allocation of time and attention towards different tasks.
The concept of a tradeoff implies a tactical or strategic choice made with full comprehension of the advantages and disadvantages of each setup. An economic what is trade off and opportunity cost is the decision to invest in stocks, which are risky but carry great potential return, versus bonds, which are generally safer but with lower potential returns.
The term is also used widely in an evolutionary context, in which case the processes of natural selection and sexual selection are in reference as the ultimate decisive factors. The concept of a trade-off is often used to describe situations in everyday life.
Similarly, trash cans that are used inside and then taken out to the street and emptied into a Dumpster can be small or large. A large trash can does not need to be taken out to the Dumpster so often, but it may become so heavy when full that the user what is trade off and opportunity cost strain or back injury when moving it.
The choice of waste receptacle is a trade-off between the frequency of needing to take the trash out for the Dumpster versus the ease and safety of use. In the case of food waste, a second trade-off presents itself as large trash cans are more likely to sit for a long time in the kitchen, leading to higher levels of decomposing food indoors and a potential pest attraction.
With a small trash can, the can will be taken out to the Dumpster more often, thus eliminating the persist rot that attracts pests. Of course, a user of a large trashcan could carry the can outside frequently anyway, but the heavier can would weigh more and the user would have to think more about when to take the can out, or confine themselves to a schedule, compared to a smaller can which is evidently full when it takes taking out.
In cold climates, mittens in which all the fingers are in the same compartment serve well to keep the hands warm, but this arrangement also confines finger movement and prevents the full range of hand function; gloves, with what is trade off and opportunity cost separate fingers, do not have this drawback, but they do not keep the fingers as warm as mittens do.
As such, with mittens and gloves, warmth versus dexterity is the trade-off. In a like fashion, warm coats are often bulky and hence they impede freedom of movement for the wearer. Thin coats, such as those worn by winter sports athletes, give the wearer more freedom of movement, but they are not as warm.
When copying music from compact discs to a computer, lossy compression formats, such as MP3are used routinely to save hard disk space, but information is "thrown away" to the detriment what is trade off and opportunity cost sound quality.
Lossless compression schemes, such as FLAC or ALAC take much more disc space, but do not affect the sound quality as much, thus providing better sound. Large cars can carry many people five or moreand since they have larger crumple zones, they may be safer in an accident. However they also tend to be heavy and often not very aerodynamic and hence have relatively poor fuel economy.
Small cars like the Smart Car can only carry two people, and their light weight means they are very fuel efficient. At the same time, the smaller size and weight of small cars means that they have smaller crumple zones, which means occupants are less protected in case of an accident.
In addition, if a small car has an accident with a larger, heavier car, the occupants of the smaller car will fare more poorly. Thus car size large versus small involves multiple tradeoffs regarding passenger capacity, accident safety and fuel economy.
In athletics, sprint running demands different physical attributes from running a marathon. As such, the two contests have distinct events in competitions such as the Olympicsand each pursuit features distinct teams of athletes. Whether a professional runner is better suited to marathon running versus sprinting is a trade-off based on the runner's morphology and physiology e. This tradeoff is chiefly from the perspective of a sport's recruiter, who decides what role a prospective athlete would best suit on a team.
In economics a trade-off is expressed in terms of the opportunity cost of a particular choice, which is the loss of the most preferred alternative given up. A tradeoff, then, involves a sacrifice that must be made to obtain a certain product, service or experience, rather than others that could be made or obtained using the same required resources.
For example, for a person going to a basketball game, their opportunity cost is the loss of the alternative of watching a particular television program at home. Many factors affect the tradeoff environment within a particular country, including availability of raw materials, a skilled labor force, machinery for what is trade off and opportunity cost a product, technology and capital, market rate to produce that product on reasonable time scale, and so forth.
A trade-off in economics is often illustrated graphically by a Pareto frontier named after the economist Vilfredo Paretowhich shows the greatest or least amount of one thing that can be attained for each of various given amounts of the other. As an example, in production theory the trade-off between output of one good and output of another is illustrated graphically by the production possibilities frontier. The What is trade off and opportunity cost frontier is also used in multi-objective optimization.
In financethe capital asset pricing model includes an efficient frontier that shows the highest level of expected return that any portfolio could have given any particular level of risk, as measured by the variance of portfolio return. In biology and microbiologytradeoffs occur when a what is trade off and opportunity cost change in one trait is linked to a detrimental change in another trait.
Tradeoffs are important in engineering. Similarly, tradeoffs are used to maximise power efficiency in medical devices whilst guaranteeing the required measurement quality . In demographytradeoff examples may include maturity, fecundityparental care, paritysenescenceand mate choice. For example, the higher the fecundity number of offspringthe lower the parental care that each offspring will receive. Parental care as a function of fecundity would show a negative sloped linear graph. A related phenomenon, known as demographic compensation, arises when the different components of species life cycles survival, growth, fecundity, etc show negative correlations across the distribution ranges  .
For example, survival may be higher towards the northern edge of the distribution, while fecundity or growth increases towards the south, leading to a compensation that allows the species to persist along an environmental gradient.
Contrasting trends in life cycle components may arise through tradeoffs in resource allocationbut also through independent but opposite responses to environmental conditions. In computer sciencetradeoffs are viewed as a tool of the trade. A program can often run faster if it uses more memory a space—time tradeoff.
Consider the following examples:. Strategy board games often involve tradeoffs: In a worst-case scenario, what is trade off and opportunity cost chess what is trade off and opportunity cost might even tradeoff the loss of a valuable piece even the Queen to protect the King. In Goyou might trade thickness for influence. Ethics often involves competing interests that must be traded off against each other, such as the interests of different people, or different principles e.
In medicinepatients and physicians are what is trade off and opportunity cost faced with difficult decisions involving tradeoffs. One example is localized prostate cancer where patients need to weigh the possibility of a prolonged life expectancy against possible stressful or unpleasant treatment side-effects patient trade-off.
Governmental tradeoffs are among the most controversial political and social difficulties of any time. All of politics can be viewed as a series of tradeoffs based upon which core values are most core to the most people or politicians. Political campaigns also involve tradeoffs, as when attack ads may energize the political base but alienate undecided voters.