Economic Decisions © 2014 Created by Sally Camden ~ The Reflective Educator ~

Introduction You make decisions every day. You decide what to wear, what to eat and what to watch on TV. Consumers, businesses and governments also make decisions. Our decisions affect other people and businesses. © 2014 Created by Sally Camden ~ The Reflective Educator ~

Not Enough Resources Producers rely on different types of resources to make goods and services. The amount of resources is limited. As a result, the goods and services that can be made are also limited. However, what we want and need is not limited. © 2014 Created by Sally Camden ~ The Reflective Educator ~

Scarcity Scarcity is when there are not enough resources for everyone to have what they want. Some things are scarcer than others. Gold is scarcer than trees. Diamonds are scarcer than doughnuts. When something is scarce, it costs more to buy it. © 2014 Created by Sally Camden ~ The Reflective Educator ~

Making Decisions As a result of scarcity, people must make decisions. Consumers must decide which products to buy. Producers must choose which products to make. When a choice is made, others choices are given up. The next best choice given up when you make a decision is the opportunity cost. © 2014 Created by Sally Camden ~ The Reflective Educator ~

Opportunity Cost Opportunity cost is not how much money you spend to buy something. It is what you gave up instead. Suppose you have $20 to spend. While shopping, you notice a sweater you like and a new book by your favorite author. They each cost $17. You cannot buy them both. What will you decide? If you buy the sweater, then the opportunity cost is the new book. You gave up the book so you could have the sweater. © 2014 Created by Sally Camden ~ The Reflective Educator ~

More Than Money Not all decisions involve money. What if your friend invited you to a birthday party but you already had a camping trip planned that day? If you decide to go to the party, the opportunity cost (what you gave up) was the fun you would have while camping. Opportunity cost is the value of the next best choice. © 2014 Created by Sally Camden ~ The Reflective Educator ~

A Web of Decisions Consumers and producers make decisions that affect each other in many ways. If you buy the sweater instead of the book, the clothing store gets your money. The book store doesn’t. The clothing store now has money to pay the sales clerk who sold you the sweater. The sales clerk gets paid and spends her income on other products. Every decision affects other people and businesses. © 2014 Created by Sally Camden ~ The Reflective Educator ~

scarcity When there are not enough resources for everyone to have what they want. © 2014 Created by Sally Camden ~ The Reflective Educator ~

opportunity cost The next best choice given up when you make a decision. © 2014 Created by Sally Camden ~ The Reflective Educator ~