1.03 Tradeoffs and Opportunity Costs

Introduction

You have learned that wants are unlimited and that resources are limited. This problem of scarcity shows us that we have to make choices. What we learn now is that our choices have costs. In economics, you don't simply concern yourself with the actual cost of an item, but you begin to see costs in terms of something you give up.

For example, let's say you have 100 dollars. You could spend the 100 dollars on a new pair of shoes, a new video game, dinner and a movie, or many other things.

• If you spend the $100 on a new pair of shoes, then you cannot buy a new video game, go to dinner and a movie, or do much else.
• Or, if you decide to go to dinner and a movie, you can't buy a new pair of shoes, a new video game, or many other things.

The point is there are many trade-offs when we make a decision!

Economists concern themselves with what was the thing we would have done next. That is the true cost of making a choice.