Unit One Flashcards
Banking:
The business conducting of services by a bank or credit union
Investments:
Taking a risk by putting your money into assets, with the expectation that your money will grow
Budget:
An estimate of income and an expenditure over a period of time
Financial Scam:
Anything that causes you to lose money when someone else gains
Savings:
Putting away money in a bank
Income:
How much money you make
Expenses:
What you spend your money on
Financial Plan:
An evaluation/map of everything you have and where you want to go
Credit:
Borrowing money with a promise to pay it back
Insurance:
Protects against loss
Opportunity Cost:
The value of the next best foregone alternative. Every money decision involves a trade off
Opportunity Cost Example:
A farmer has a quarter of land. He can use this land to raise either 75 tonnes of wheat or 25 tonnes of lamb. What is the opportunity cost of the farmer was to use the land for lamb? (Statement) what is the opportunity cost if they were to raise one ton of lamb? (#’s)
The opportunity cost to raise 25 tonnes of lamb is 75 tonnes of wheat.
The opportunity Cost to raise one ton of lamb is 3 tonnes of wheat
Opportunity Cost Example:
A creamery has one room in which they produce both cream and butter. In 3 hours they can produce 50lbs of butter and 350 liters of cream. What is the opportunity cost if they produce 350 liters of cream? (Statement) what is the opportunity cost if they were to produce 1lbs of butter? (#’s)
The opportunity cost to produce 350 liters of cream is 50lbs of butter.
The opportunity cost to produce 1lbs of butter is 7liters of cream.
Suppose that you are given $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:
10/10=1 40/10=4
The opportunity cost to purchasing 1 stapler is 4 pens.
6 Factors that influence a Financial Decision
Needs
Wants
Values
Peers/Family
Opportunity Cost
Risk
