Standard SSEF1 a. Define scarcity as a basic condition. d. Define opportunity cost as the next best alternative

Scarcity The condition of not being able to have all the goods and services one wants Because resources are limited , people must choose some things and give up others

Scarcity This is the fundamental economic problem.

What makes something Scarce? Scarcity Must be desirable Must be limited Must have value (price) In order for an item to be desirable it must have Utility( be useful).

Paradox of value Paradox of Value: A situation where a some necessities are worth less than non-necessities Value: refers to worth in dollars and cents

Opportunity Cost The opportunity cost of a choice is the value of what you must give up when you make a particular choice. The choices people make have both present and future consequences.

Trade-Off Giving up some of one thing to get more of another Trade-offs are all those things you could have done but didn’t choose to do.

Opportunity cost vs. Trade off T-chart Step 1- Think of 5 school appropriate things you would do with a couple of hours of free time this weekend . Write them down. Step 2 – List them from #1 being your first choice to #5 being your last Choice Term

T-chart Step 3- Put them in a T-Chart like this 1. 2. 3. 4. 5. Things I would do with my free time. Economic Term

Marginal Cost v. Marginal Benefit People make decisions based on costs and benefits The benefits must equal or outweigh the costs. Rational Decision Making takes place when marginal benefits equal or exceed marginal cost.

Marginal Analysis In economics the term marginal = additional “Thinking on the margin”, or MARGINAL ANALYSIS involves making decisions based on the additional benefit vs. the additional cost.

Which flight should you choose? Why? Given the following assumptions, make a rational choice in your own self-interest (hold everything else constant)… 1. You want to visit your friend for the weekend 2. You work every weekday earning $100 per day 3. You have three flights to choose from: Thursday Night Flight = $300 Friday Early Morning Flight = $345 Friday Night Flight = $380 Which flight should you choose? Why? 12

Cost – Benefit Analysis Step 1 – Decide what your choices, or alternatives, are. Step 2 – List all marginal costs (“cons”) and marginal benefits (“pros”) in a decision making grid. Step 3 – Decide which choice (alternative) benefits you most.

Cost – Benefit Analysis List 3 choices of things to do after graduation. Use the following chart to complete a cost-benefit analysis to decide where you should go. Choices Cost The “cons” or negative consequences if you choose this. Benefits The “pros” or positive outcomes of your decision

5 Key Economic Assumptions Society’s wants are unlimited, but ALL resources are limited (scarcity). Due to scarcity, choices must be made. Every choice has a cost (a trade-off). Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice Real-life situations can be explained and analyzed through simplified models and graphs.

Plan a Dance! Group Choice Band/DJ Place Food Project 1st Choice 2nd Choice 3rd Choice 4th Choice

Answer the following questions in your group What tradeoffs did your group make? What was the opportunity cost of each of your group’s decisions? How did group preferences influence decisions? In what ways is this problem similar to the “economizing behavior” faced by your family, and in what ways is it different?