IT ISN’T GOING TO BE LIKE THIS PERSONAL FINANCE & ECONOMICS

UNIT ONE PERSONAL FINANCE & ECONOMICS

EPF STANDARD 1A I can describe how consumers, businesses (producers), and government decision makers face scarcity of resources and how scarcity forces groups to make decisions and that those decisions may have unintended consequences Target A

WHAT IS SCARCITY The principle that limited amounts of goods and services are available to meet unlimited wants or more simply, there is never enough of everything to satisfy everyone completely

SCARCITY

Everyday we are faced with the principle of scarcity Example: You stand in front of a vending machine with only a dollar to spend and debated between two equally desirable options? (Choice) But scarcity isn’t limited to just money or choices, Time is a limited resource. Just as you spend money, you spend time.

TIME AND LOSS

ANALYZING SCARCITY You have to decide how to best use resources to maximize their return. How people do this generally increases their overall happiness or satisfaction The measure of this satisfaction is called a utility. Things that make you happy have a high utility, those that don’t, a low utility. The goal for everyone is to find the best way to allocate-distribute-limited resources in order to generate the most utility

THE FEDERAL BUDGET Tradeoff

EPF STANDARD 1B I can describe how, because of scarcity, consumers, businesses, and government decision makers face opportunity costs Target B

EVERY CHOICE COMES AT A COST Every choice you make comes at a cost, without enough resources, you are forced to make choices. Opportunity cost is their next best choice that you give up in order to do something else. (the best value given up) Some things have a lower opportunity cost, go buy a new jacket or go to the movies. Other things have a higher opportunity cost. Should I buy a car or save for College? Even Career choices have an opportunity cost. A choice opens some possibilities, while eliminating others.

STANDARD EPF.1C I can explain how decision making requires comparing the additional (marginal) costs and the additional (marginal) benefits Target C

MARGINAL COST VS. MARGINAL BENEFIT

WHAT IS MARGINAL BENEFIT? WHAT IS MARGINAL COST? Marginal benefit is the change in total benefit resulting from an action. Marginal cost is the change in total cost resulting from an action.

HOW CAN MARGINAL BENEFIT AND MARGINAL COST BE USED TO IMPROVE DECISION-MAKING As long as the marginal benefit of an activity exceeds the marginal cost, people are better off doing more of it; when the marginal cost exceeds the marginal benefit, they are better off doing less of it. To determine the best level of consumption of a product or whether to participate in an activity, people must compare the additional benefits with the additional costs of consuming or participating a little more or a little less.

DECISIONS

SIX STEPS TO A DECISION 1. Identify the decision to be made 2. Consider all possible options 3. Identify the consequences of each option 4. Select the best options 5, make and implement a plan of action 6. Evaluate the decision, process, and outcome

G1 © Family Economics & Financial Education –May 2012 – Financial Decisions – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Summary Financial Decisions Wants Needs Values Analyzing trade-offs and opportunity cost will help you determine which decisions to make

CRITICAL THINKING Be honest …don’t sub come to bias Be rational …reason & thought devoid of emotion or impulse Be open …willing to evaluate all possible options Use the Communication Process : Be clear, Be personal, Be positive, Get to the point, Actively listen, and Think before you respond Verbal vs. Nonverbal Communication

LOST ON THE MOON EXERCISE

EPF STANDARD 2A I can explain how consumers, producers, workers, savers, investors, and citizens respond to incentives Target D

WHAT IS AN INCENTIVE? HOW DO INCENTIVES INFLUENCE BEHAVIOR? A positive incentive is a reward or other enticement that encourages a behavior (e.g., prize, wages). A negative incentive is a penalty that discourages a behavior (e.g., library fine, parking ticket ).

HOW DO CONSUMERS, PRODUCERS, WORKERS, SAVERS, INVESTORS, AND CITIZENS RESPOND TO INCENTIVES? For example: value and/or a lower price is an incentive for consumers profit is an incentive for producers pay and benefits are incentives to workers interest earned is an incentive for savers

INCENTIVES, CONTINUED capital gain is an incentive for investors (e.g., buying at $10 and selling at $15 results in a $5 capital gain) citizens have an incentive to vote for politicians who share their views interest groups have an incentive to seek to influence politicians to vote in ways that benefit their group.

UNIT 1 QUIZ AT NEXT CLASS MEETING END OF UNIT 1