Scarcity and Opportunity Cost Staker

ECONOMICS Economics: the study of how people use scarce resources to satisfy unlimited wants A different way of thinking about choices Microeconomics: study of behavior and decision making by small units such as individuals, families & firms. -(Prices of single items, markets, business decisions) Macroeconomics: study of the economy as a whole and decision making by large units such as governments and unions.

SCARCITY SCARCITY: society doesn’t have enough resources to produce all the things people would like to have. It is the fundamental economic problem

How do people deal with scarcity? Scarcity forces us to choose We can’t avoid making choices about resource use Resources are anything we can use to attain our wants and needs.

The Rational Actor Model Assumptions: Humans are self-interested (not selfish, but act in ways consistent with our preferences) Humans are rational (can choose behavior appropriate to achieve goals)

Are we rational? A $20 toaster is on sale for ½ price across town. Would you go buy it? An oven that sells for $500 at a nearby store is on sale for $490 across town. Which would you buy?

How do “rational” people make choices? But costs and benefits are not always so easy to see! Cost-Benefit Analysis: Process of making choices by carefully weighing costs and benefits.

How do people make choices? People try to maximize benefits and minimize costs

How can I maximize my utility? Why? Utility is simply happiness or satisfaction People try to make good decisions in order to increase utility We try to make decisions that give us the greatest utility How can I maximize my utility?

Summarize then BREAK!!!!!!! With a partner Summarize everything we have just discussed/ studied by writing a generalizing statement/sentence using the terminology form the standards words. The BREAK – 4 minutes…..

Summary In a world of scarcity, rational actors attempt to maximize utility by carefully weighing the costs and benefits of their decisions.

Cost Benefit Analysis: Costs and Benefits of a High School Diploma

Cost Benefit Analysis: Costs & Benefits of a High School Diploma

Average Earnings by Highest Degree Earned: 2002

10 years later High School Diploma - 33,904 Bachelors – 55,432

Choices Cost benefit analysis A decision is economically “efficient” if the benefits outweigh the costs

Wants vs. Needs and Goods vs. Services Wants=desires Needs=necessities Goods=physical objects such as clothes or shoes Services=activities or actions that one person performs for another (mechanic, electrician) Think of an example for each of these terms and put in your notes

TRADE-OFFS & OPPORTUNITY COST Trade-offs: other choices you could have made when you spend your $ or time. What are you giving up when you make a choice? Opportunity Cost: the most desirable alternative given up when making a decision Opportunity cost is the cost (VALUE) of the next best trade-off

Trade-offs Example: Spending a little more time studying means you sacrifice watching t.v., talking on the phone, and listening to the Spice Girls

Trade-offs Example: Hitting the snooze button involves sacrificing time to do your hair, eat breakfast, being in class, etc.

Trade-offs Example: Building a new wing onto RV means giving up computers, books, parking lots, basketball courts, etc.

Any choice involves trade offs Any choice costs you the opportunity to do something else

Opportunity cost is the runner-up in the choice contest. I chose to _________, therefore, I couldn’t _____________.

OPPORTUNITY COST Time spent, convenience also has an opportunity cost.

OPPORTUNITY COST

OPPORTUNITY COST What are the trade offs for going to dinner? What was his opportunity cost for taking her to dinner? Why or why not?

4 Factors of Production (C-E-L-L) CAPITAL: tools, equipment and factories used to produce goods and services. ENTREPRENEURS: people who take risks in search of profit; they start new businesses or bring new products to market. LABOR: people with all their efforts, abilities and skills LAND: gifts of nature, not created by human effort

4 FACTORS OF PRODUCTION ILLUSTRATION ASSIGNMENT Create an illustration about the 4 factors of production. The illustrations must be COLORED and should include: A label of each of the 4 factors A short description/definition of each factor Pictures with at least 3 items representing each of the 4 factors. (3 pictures for capital, 3 for labor, 3 for land, etc.)

3 Basic Economic Questions WHAT to produce? HOW to produce? FOR WHOM to produce? **Society must answer these 3 questions as long as there aren’t enough resources to satisfy the problem of scarcity**

3 Basic Economic Questions “Apple Computers to Begin Manufacturing Computers Made Specifically for Elementary Children” “Powerade Will Be Sold in All High Schools Next Year.”

3 Basic Economic Questions “China Will Focus on Increasing Rice Production in 2007” “DVD Players Will Now Be Manufactured Entirely by Robots”

3 Basic Economic Questions “United States Hopes to Become the World Leader in Potato Production” “Henry Ford Revolutionizes Automobile Production by Using an Assembly Line”

Review Activity Write 3 newspaper headlines on your own: one for each of the 3 Basic Economic Questions. You will share one of them with the class and the class will guess which question your headline is addressing.

Create your own business Imagine that you are an entreprenuer starting your own business. First, what kind of business would it be? (What good or service are you providing?) Be sure to give AT LEAST three aspects of LAND, 3 aspects of LABOR, and 8 aspects of CAPITAL needed to successfully run and manage your business.