9. Read the excerpt form the documentary “Tourist Attraction” and paraphrase its main idea:

We live in a consumer-oriented society, what that means is this: we must buy everything that our factories and our businesses produce. If we don’t, the businesses and the factories will close down. Here’s the problem: how do you get people who already have everything they need to buy huge quantities of goods that they don’t need?

I mean, it sounds weird when you say it, but the people who have money have everything they need in order to keep the system going. If you don’t believe me try it at Christmas. Your biggest problem at Christmas is not, “where am I going to get money to buy presents for my friends and loved ones?” That’s not the problem, you’ll have the money. The problem is this: “what do I buy for people who have everything?” It never occurs to us to say, “nothing”. But we are people who have everything and this Christmas you’re going to wander up and down the isles of department stores, hoping that since last year somebody has invented something that you don’t need in order that you can buy it for the person who has everything.

10. a) Scan the article “Opportunity costs” to define the following terms: opportunity costs, money cost, production cost, foregone earnings. Compare your definitions with a partner. Then share them with the whole class.

b) Read the article carefully and complete the questions that follow below at home then in class in groups of 2 or 3 discuss these issues.

1) Having read the article carefully, look at the definition you wrote earlier for opportunity cost. If you are not completely satisfied with that definition, write another at this time.

2) What was the opportunity cost of your last major purchase? What was the opportunity cost of a decision you made to spend your time a particular way.

3) What is the opportunity cost involved in a decision to continue schooling after graduation from school? In contrast what was the opportunity cost involved in a decision to forego schooling in favour of entering the world of work immediately after graduating from school?

4) The firm referred to in the last two paragraphs of the reading estimated that it would have to invest US$ 500, 000 in order to produce microwave ovens. Production costs would add another US$ 200, 000 annually. The firm estimates that it could sell about US$ 225, 000 worth of ovens each year. Would it be wise for the firm to manufacture the microwave ovens? Explain your answer.

Opportunity Costs

(1) Economists are concerned with how we make choices in a world of scarce resources. Individuals, families, business firms and governments all must make decisions about how best to allocate the limited resources at their command.

(2) When resources are limited, choices are limited as well. This means that the decision to have one thing is at the same time, the decision not to have something else. Suppose, for example, that a government chose to pay for an increase in the size of its air force with the money it saved by building fewer schools. In that instance an increase in defense was paid for by a reduction in the number of schools.

(3) The opportunity cost of any decision is the value of the next best alternative that is given up. It is the relevant cost to use when trying to make the best (optimizing) decision. This is true whether the decision relates to consumption, production, or investment.

(4) Even though we usually think of the money cost of producing something, the opportunity cost provides a much more sensible way of measuring economic cost. If more resources (labor, plastic, steel, etc. ) are used to increase the production of computers, then the production of something else that requires those same resources (such as stereos) must be cut back.

(5) If every computer requires the same resources as two stereos, then the opportunity cost of producing a computer is two stereos. It makes sense to evaluate the cost in terms of what we don't get because we’re producing computers.

(6) In fact, the concepts of money cost and opportunity cost are very closely tied together in a market economy. In general, a good that has a high opportunity cost will also have a high money cost. This is because pr ice is one

Way to allocate resources among competing uses. Let's thin k of some of the ways that opportunity costs play fundamental roles in our lives. Many high school students consider going to college for four years after graduating

from high school. What is the cost of acquiring a college education?

(7) Obviously, the cost of tuition, the cost of books and other supplies and the cost of living in a dorm represent the money cost of going to college. The other uses this money might have been put to represent it s opportunity costs. But what else is a cost of going to college? If a student did not go to college, then he or she would most likely find a job instead.

(8) The money that those who choose college might have earned during their years of study is described by economists as foregone earnings. Foregone earnings represent another very important cost of a college education. Thus the opportunity cost of going to college is the goods and services represented by the money cost of the education plus the value of the foregone earnings.

(9) Another example of this concept can be seen in the opportunity cost of capital. Let us assume that a manufacturing firm is considering the addition of microwave ovens to its product line. What will it cost to produce them?

(10) In addition to materials and labor costs, the firm must also consider the return it might receive if instead of using those funds to manufacture microwaves, it put the money into U.S. Treasury bonds or some other safe investment (its

opportunity cost). Let us assume, for example, that the firm could earn 10 percent on the money simply by investing it in government bonds. That being the case the complete cost of production would have to include both production

costs and the opportunity cost of the firm's capital.