Scarcity and Opportunity Cost Mr. Phinizy / Mr. Petty

ECONOMICS Economics: the study of how people use scarce resources to satisfy unlimited wants Microeconomics: study of behavior and decision making by small units such as individuals and firms. 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

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

Would you rather… Sleep late or go on a Caribbean cruise? Sleep late or go to the mall with friends? Sleep late or study for a test? Whatever you chose depended on the opportunity cost of the alternative…what you were willing to sacrifice.

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

OPPORTUNITY COST Mr. Petty owns a small shoe store but has NO employees. On an average day he takes in $200 in sales, and that’s about what he expects to make this Friday. Mr. Petty is offered an opportunity to go on a day-long competition on a local radio show on Friday. If he goes on the show he will have to close his shop, and will lose any sales he would have made for the day. At the radio show, he will compete against 100 other listeners, and the winner will receive $10,000. The game is based entirely on luck, so each of the 100 listeners has an equal opportunity of winning.

OPPORTUNITY COST If he goes on the show, what is Mr. Petty’s opportunity cost? Do you think he should go on the radio show? Why or why not?

3 Basic Economic Questions 1. WHAT to produce? 2. HOW to produce? 3. 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.

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

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.

4 FACTORS OF PRODUCTION ILLUSTRATION ASSIGNMENT Create an illustration about the 4 factors of production. The illustrations must be COLORED and should include: 1. A label of each of the 4 factors 2. A short description/definition of each factor 3. Pictures with at least 3 items representing each of the 4 factors. (3 pictures for capital, 3 for labor, 3 for land, etc.)