An easy way to remember the difference is to note that trade-offs cause opportunity costs. It’s easy to confuse opportunity costs and trade-offs, but they’re two distinctly different things. For example, the trade-off in our dinner scenario would be eating at home or going out to eat. They also must consider the trade-offs. A trade-off is an alternative to a decision. When making a decision, one must weigh the cost, benefit, and opportunity cost. In the pizza scenario, the opportunity cost is the money you could have saved by eating at home, or spending some of that 45 minutes doing work, spending time with family etc. What you could have done in those 45 minutes is called opportunity cost. An opportunity cost is the next best option that was lost when the decision was made. For example, going out for pizza for dinner costs $10 and 45 minutes. A cost can be something tangible, like money, or something intangible, like time. Everything has both a cost and a benefit. A cost is what one gives for something, while a benefit is what one receives for something. Economics is the study of how people satisfy their wants and needs in a society with scarcity.īecause we can’t have all that we want and need, we need to make decisions about what we do, purchase, and use. Our wants and needs outweigh our resources, so we have scarcity. Special thanks to Timmy Leong and Benjamin Anderson-Krim of Newton South FBLA (MA) for their help with this section.Įconomics is based upon a simple principle: there are unlimited wants, but limited resources in the world. Humans cannot produce everything that we want in the quantity that we want it. This section is designed to give you a primer on economics so that you can begin to participate in economic decision making, learning how and why people make a decision and weighing the costs and benefits of a decision. Lesson Overview: Economics is the basis of business and thus the basis of personal finance.

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