Lesson 4
Opportunity Cost

Objectives:
1) recognize and explain with examples the concept of opportunity cost
2) identify trade-offs that take place whenever a choice is made

Activities:
1) Introduction/Warm-Up

a) Hook- film clip from Jerry Maguire that shows examples of opportunity cost and trade-offs [~5-10 minutes]

-while watching the movie, students are asked to think about and jot some notes on these questions:

1) Identify people who made a choice.

2)What choice did they make?

3)What choice did they give up?

4) What was the value of the choice given up?

5) Reasons for choice taken.

b) After a brief discussion about the film clip, students are asked to look up and define opportunity cost, trade-offs. Students then link the different questions about the movie to the concepts of opportunity cost and trade-offs.

Alternative to showing film clip-
One student will read aloud the personal narrative on p11 on opportunity cost. Students will discuss the importance of information in making choices. Students would consider what the other choices the character could have made, what personal factors are involved in making choices, and how his opportunity costs would have been different.

c) Students are posed with the following or a similar scenario about opportunity costs and trade-offs for individuals and businesses.

1) Worksheet- with the following mystery: "when it takes, at least, an additional seven years of schooling, and over one hundred thousand dollars in costs and lost earnings, why would a person want to graduate from college instead of dropping out after the ninth grade?" [students will figure out the total cost of going to college-direct costs+opportunity costs and compare that information to the average earnings by educational attainment]

2)In your senior year, you inherit $10,000. You can decide whether or not to go to college. What are the opportunity costs and trade-offs? What are the risks faced and the incentives (motivating reasons) for each possibility? Show the actual costs on the board.

3) Chart Worksheet with four problems-should I buy a $10,000 car or put it in a savings account with 2% interest? Should I study for a final or go to a friend's birthday party? Should I spend $2,000 on a laptop or $1,000 each on two desktop computers? Should I hire a younger person with potential (@$7.00/hr) or an older person with experience (@$15.00/hr)? For each, explain the choice made, the trade-offs, the opportunity costs, and the reasons for the decision.

2) Main Activity-opportunity costs and trade-offs for government, making decisions as a group

Students are divided into groups of four. Each of the groups will work on one of the following problems which ultimately each will share with class:

a) You are a member of your state’s legislature, and there is a $500,000 surplus in the state budget. How much of that $500,000 would you spend on each of the following programs: aid to the homeless, money to retrain unemployed workers, aid to schools in poor neighborhoods, improvement of state roads, or money for the state society for prevention of cruelty to animals? Explain why you chose to support certain programs and to spend no money on others. What are the trade-offs? What is the opportunity cost of the choices that you made? [note: students should pick the top two choices and allocate funds into them]

b) A city council meeting is called to allocate a budget of $100,000. The council would like to buy four new police cars at $25,000 each, two senior-citizen centers at $50,000 each, and build two new tennis courts at $50,000 each. Explain why a choice must be made, decide how the city council should spend its money, describe how the city council should spend its money, describe the trade-offs made, and identify the opportunity cost of the decision.

Each group will present in front of the class. Ultimately students will vote on which group presented their explanation the best for each question posed.

Evaluation:
1) Class activity observations
2) homework: Students will be given some time to make a list of their personal spending in the past week or month. For each purchase made, students will identify their trade-offs and opportunity costs and the factors that influenced their economic decision-making.