Econ Essentials #6 Scarcity

What do you do with your money?

The Economic Problem! We have limited resources, but unlimited wants This is scarcity

Thus, We must allocate (distribute) our resources effectively AND SO, We have to make choices or trade-offs

The Economic Questions! What to produce? If resources are limited, what do we choose to use them for? If many new students move into the area, should we build another school or expand this one?

2. How to Produce? How do we make products? If building a house, do you buy new machines or hire more workers to make the product? Why might they hire more workers instead of buying new equipment?

3. For whom to produce? Who do we allocate our limited resources to? Should we spend more money on schools or jails?

Is water a scarce resource?

According to the United Nations, every day 4,500 children under the age of 5 die around the world, having fallen sick because of unclean water and sanitation. Five times as many children die each year of diarrhea as of HIV/AIDS. A third of the world’s population is enduring some form of water scarcity. One in every six human beings has no access to clean water within a kilometer of their homes.

Econ Ess. #7: Opportunity Cost Quick Review (Copy, if you want to!!) Which of the following is a service? Concert Hot dog Computer Which of the following is a natural resource? Hammer Gold Cash

More Review…. Which of the following best describes scarcity? Having more than enough to satisfy one’s wants and needs. Not having enough to satisfy one’s wants and needs. Having just enough to satisfy one’s wants and needs.

The Road Not Travelled When we choose one thing, we loose another – called Opportunity Cost – value of the next best alternative you must pass up (lost opportunity)

But, How do you know what you have missed out on?

Calculating the Cost The Opp. Cost varies with the situation Value of your time on a Wed night vs. Sat night Make the best choice with limited information When your parents say, if I had only known…..

Sunk Cost: resources spent, that can’t be recovered Time is the ultimate limitation / limited resource Sunk Cost: resources spent, that can’t be recovered Do you walk out halfway through a bad movie? Economists would say …..

Making Economic Decisions Cost-benefit analysis: compare costs with benefits and make best decision

So, what about college? List all the things you have to pay for to attend a four year college.

College Costs @ UCLA Tuition - $8,851 / At CSULB: $4,026 Health Insurance - $885 Room & Board - $13,314 Transportation - $909 Living Expenses - $1,551 Total Cost - $27,109

More Cost Besides the financial costs, what else will it cost you to go to college?

What are the benefits?

What’s the opportunity cost for attending a 4 year school What’s the opportunity cost for attending a 4 year school? (What’s the next best alternative?)

Is it worth it?