Opportunity Cost & Scarcity

Notes outline/topics Economizing Scarcity Opportunity Cost

Economizing Seeking to obtain the best possible combination of costs and benefits Applies to all choices, NOT just monetary choices

What IS Scarcity?

Is water in a desert scarce?

Is water in a river scarce?

2 Definitions of Scarcity When the demand for a good is greater than the resources available. Ex. Water in the desert A situation when a resource has more than one valuable use. Ex. Water in a river

Does Scarcity exist? Mark an S if the item is scarce. Mark NS is the item is not scarce. Old economics textbooks collected in a bookcase with a sign that says “Free books, take as many as you want.” The books have been there for 3 years. Old economics textbooks collected in a bookcase with a sign that says “Free books, take as many as you want.” Another sign posted in the hallway says, “$10 paid for any recycled textbook. Bring books to office.” One economics textbook and five students who wish to do well on the economics test the next day. One economics textbook and five students who are not taking economics. Petroleum (oil) in Japan, a country without its own oil fields and without oil reserves. Petroleum in Saudi Arabia, a country with many oil fields and reserves.

3. One economics textbook and five students who wish Does Scarcity exist? Mark an S if the item is scarce. Mark NS is the item is not scarce. Old economics textbooks collected in a bookcase with a sign that says “Free books, take as many as you want.” The books have been there for 3 years. Not Scarce 2. Old economics textbooks collected in a bookcase with a sign that says “Free books, take as many as you want.” Another sign posted in the hallway says, “$10 paid for any recycled textbook. Bring books to office.” Scarce 3. One economics textbook and five students who wish to do well on the economics test the next day.

4. One economics textbook and five students who are not taking economics. Not scarce 5. Petroleum (oil) in Japan, a country without its own oil fields and without oil reserves. Scarce 6. Petroleum in Saudi Arabia, a country with many oil fields and reserves.

**the next-best thing** Opportunity Cost In any choice, the highest-valued alternative that must be forgone (given up) when another alternative is chosen **the next-best thing**

Example #1 – After-school activities Do homework Work at part-time job Watch TV Hang out with friends Take a nap

Example #2 – deserted island 2 rain ponchos 2 knives 2 paddles 1 small ax

Example #3 – free candy Butterfinger Reeses M&Ms Snickers Kit-Kat

Example #4 – College What is the opportunity cost of attending a 4-year college?

Does Scarcity Exist (part 2) Water fountains in Rome flow continuously with water carried by viaducts from the Italian mountains. People walking in Rome quench their thirst by drinking from the fountains. But most of the water flows into the street and down the drains to a river that passes through the city. At closing time, restaurants in the U.S. are required to throw away all uneaten food. To meet health standards for food preparation and the safety of consumers, the food cannot be stored for use the next day. Also, the law prohibits restaurant employees from giving the food to the poor or dispersing it to local food banks.

3. Oxygen is taken from the air and stored in containers 3. Oxygen is taken from the air and stored in containers. When divers wish to stay underwater for long periods of time, they purchase container-stored oxygen and breathe it during their underwater activities. 4.Pebbles are taken from a beach to build a walkway in a homeowner’s lawn. No one else wants the pebbles. The pebbles are not necessary for the lake’s ecosystem or animal habitat. 5. A farmer has a water irrigation contract that requires the water user to use the entire allocation of water to water crops, whether or not all the water is needed for crop irrigation. If the farmer does not use all the water, he or she will receive smaller allocation next year.