Economic Magic: Creating Something from Nothing Unit 1 Lesson 3 Economic Magic: Creating Something from Nothing

Opportunity cost is the cost of the next-best alternative Opportunity cost is the cost of the next-best alternative. The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. It is important to keep in mind that opportunity costs are not restricted to monetary or financial costs. Opportunity Costs Elaine's birth control sponge has been pulled off the market, and she's carefully hoarding her stash. So is the man she's dating “spongeworthy?” If she uses a sponge for him, she won't have it if a better opportunity comes along.

Castaway Picture it…you are on vacation in spectacular Southeast Alaska, kayaking with a group of friends. You can’t believe you are there. You have never kayaked before in your life, but the school had a special deal enabling students to spend a few days sea kayaking and whale watching. It sounded great, so you went along. It’s the end of July. The weather is warm and the scenery is spectacular. You’ve had good times and easy paddling so far, but today you’ve noticed clouds fathering and a chill in the air. Still, you and your friends climb into the kayaks and get started, thinking that if it does rain you will be able to dry off later, after you travel the day’s course and make camp. Just as you expected, rain beings to fall, and it shows no sign of stopping soon. The clouds get darker, the rain pours down harder and harder, and THE WIND COMES UP! It becomes difficult to paddle in the waves. You might be in trouble. Then a huge wave hits the kayak and, very quickly, you capsize. But you and your friends remember your safety training. You grab hold of the kayaks and paddles and swim for shore. Thank goodness you were careful to travel near land at all times. Gasping for breath and shivering from exposure to the cold water, you eventually drag yourself up onto the shore. Now you have a new problem. You and your friends are stranded on a small, deserted island, and you don’t know how long you will have to be there. The nearest settlement is over 75 miles away. Your task: Survive!

Opportunity Cost As you make choices about how to survive, consider the consequences of each choice. These consequences include anything you might give up in making a particular choice. Economists call this an analysis of opportunity cost, because using a resource in one way may foreclose the opportunity to use it differently. Definition: In any choice, the opportunity cost is highest-valued alternative that must be forgone when another alternative is chosen. Examples: If you use the kayak paddle for firewood, you cannot use it as a fishing pole. If you use the drinking water collected from the rain for taking a shower, you cannot use it to satisfy your thirst.

10 Day Survival Plan In your group settle on a survival plan for at least 10 days. Describe your plan on the back of Activity 1. Make sure you come up with a name for your new group of survivors. Once you have finished your plan pick one member of the group to come to the board and briefly explain your groups survival plan. Now if your group, thoroughly answer questions 1-3 in complete sentences. On your own summarize and explain the key ideas.

Closure Objectives Concepts Distribution Opportunity Cost Scarcity Define the opportunity cost of a decision as the most valuable alternative forgone. People cannot have all the goods and services they want; as a result, they must choose some things and give up others. State the three fundamental questions that people in every economy must answer. What to produce? How to produce it? For whom will it be produced? Recognize that people try purposefully to make the best choices they can, given the alternatives available. Different methods can be used to allocate goods and services. People, acting individually or collectively through government must choose which methods to use to allocate different kinds of goods and services. Distribution The allocation or dividing up of the goods and services a society produces. Opportunity Cost The second-best alternative (or the value of that alternative) that must be given up when scarce resources are used for one purpose instead of another. Scarcity The condition that exists when human wants exceed the capacity of available resources to satisfy those wants. Resources The three (or four) basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.