1.

The Basic Economic Problem

1.3 Opportunity Cost
 Lesson Objectives

● To be able to define Opportunity Cost

● Be able to give examples of opportunity cost in
different contexts
● To be able to explain the influence of opportunity cost
on decision making - e.g. decisions by consumers,
workers, producers and governments when allocating
resources
Recap.. Why can you
not have all the
What is the goods you
Economic want?
Problem?
How does the economic problem affect:
- Individuals?
- Firms?
- Government?
The economic problem forces
individuals, firms and
governments to make
choices
These Choices are called
Opportunity Costs
 Opportunity Cost

The next best alternative forgone when making

an economic decision
E.g. The Government needs to spend on a new school
and a new road. It only has enough money for one. It
chooses the new school and so the new road in the
opportunity cost.
 Activity

Think Pair Share

Can you think of a time (an example)
when you faced a choice and gave up
something and something else instead?
Examples:
Do you go
i c u l u m w i ll universit to
Which curr y or get a
job
e i n y e a r 11 straight a
you tak way?
D P o r H S C ?
IB

Do you choose a university course

that you really enjoy or a one that
makes you more employable after?
 Table showing examples of choices that have been made
and the opportunity cost of these choices
Choices: the Opportunity Cost: the next
alternatives to choose First Choice best alternative choice that
between has been given up

Consumer Buy a new watch or buy A watch Concert tickets

concert tickets

Worker Work overtime or spend Spend time with your Additional wages from working
time with your children children overtime

Producer Increase advertising More advertising Increase training

expenditure or increase
training

Government Pay higher pensions or Higher wages for Higher pensions

higher wages for government
government employees employees
 Why might those decisions have been made?
(EXPLAINING)
● Consumer might decide a watch is more important because they
want to make sure they are not late for important work
appointments
● Worker might decide to spend time with children as they had an
increase in pay so they no longer need to work overtime
● Producer might have a lot of local competition and so marketing
and advertising is vital and so they increase advertising expenditure
● Government might need to encourage people to work for a
government department so offers higher wages as an incentive,
especially in areas where they have shortages.
 Activity

Practice:
Aldi - An investment in staff leads to
global growth
 Possible Answers
1) Aldi could have invested more resources in
marketing
2) The opportunity cost of Aldi choosing to invest in its
employees is what they have sacrificed in terms of
marketing. Increased marketing would bring more
customers into their shops. In addition Aldi has lost
the revenues (money made through sales) that
these extra customers would have provided.
 Possible Answers
3) Aldi probably recognises the importance of having a skilled and
knowledgeable workforce.
Training means that their staff can be more efficient or provide
better customer service which makes the staff more productive
and therefore Aldi stays competitive.
Providing training for staff allows for employees to see career
opportunities within Aldi’s business and so employees are less
likely to want to leave.
A greater retention rate means that in future they need to spend
less on training new employees.
 Activity
Making Choices
Scenario: Local Government has announced that they have been given money
to invest in the local community. They invited groups to suggest how this should
be spent. Three groups have suggested very different projects.

Split into three groups plus one Local Government Representative

Each group should read their card and present a case to the rest of the class.

Team 1 are suggesting the money is spent on a Youth Centre

Show passion
and
Team 2 are suggesting the money is spent on a Day Centre
enthusiasm
for your idea!
Team 3 are suggesting the money is spent on Nursery