Lesson Two Scarcity, Choice, and Opportunity Cost The Economy of Michigan Unit Two:

People use natural, human, and capital resources to produce goods and services

The BIG Ideas  People use resources to produce goods and services.  Scarcity results because resources are limited and human wants are unlimited.  Because of scarcity, people must choose some things and give up others.  Incentives are sometimes used to get people to buy a good or service.  Incentives are also used to get businesses to produce a good or service; or start their business in a particular place.

Herby’s family had an old computer that was always breaking down. They wanted a new computer. They bought a new computer that had lots of memory and could be used for lots of things including storing photographs. Because of that, the family wanted a digital camera. They bought a digital camera and stored their photos on the computer. They had so much fun with the camera they decided they wanted to make their own families movies. Now, they wanted a digital camcorder. The family bought a digital camcorder and started taking loads of home movies. They stored their movies on the computer. Soon, they had so many photographs and movies stored on the computer that they used up all the memory it had. Now, the family wanted a new computer with more memory. Buying a New Computer

Herby’s family had an old computer that was always breaking down. They wanted a new computer. They bought a new computer that had lots of memory and could be used for lots of things including storing photographs. Because of that, the family wanted a digital camera. They bought a digital camera and stored their photos on the computer. They had so much fun with the camera they decided they wanted to make their own families movies. Now, they wanted a digital camcorder. The family bought a digital camcorder and started taking loads of home movies. They stored their movies on the computer. Soon, they had so many photographs and movies stored on the computer that they used up all the memory it had. Now, the family wanted a new computer with more memory. Buying a New Computer

When people get one thing they want it often leads to them wanting another.

Unlimited Wants

Herby’s family did some research on new computers. They picked out a Magna 728 which was loaded with memory. It was the perfect computer for them. They went to four different stores trying to buy the computer but no store had one because they were so popular. Herby’s father finally called the company that makes the Magna 728. He was told that the company did not have enough workers or parts to produce all the computers people wanted.

natural resources things in nature that people find useful Example: Water, soil and trees are natural resources.

capital resources goods that are used to produce more goods and services Example: Factories and tools are capital resources.

What were the two types of resources that the makers of the Magna 728 did have enough of? The company lacked both human and capital resources

Limited Resources Unlimited Wants Scarcity Goods and Services Choices

unlimited wants There is no end to the number of things people want and need. Example: People have unlimited wants.

limited resources There are only certain amounts of resources. Example: Individuals and businesses have limited resources.

What are some choices Herby’s family has now?  They could wait until there are more Magna 728 computers available.  They could buy another computer similar to the Magna 728.  They could keep their current computer and try and delete some of their photos.

What did the family decide?  Herby’s family decided the last option, number 3, deleting pictures would not work.  The family decided to choose between option 1, waiting for a Magna 728 and option 2, buying another computer that was okay but not the one they really wanted.  Their final decision was to buy another computer instead of waiting for the Magna 728 (option 2).  When Herby’s family chose to buy the other computer, they incurred an opportunity cost.  option 1, or the Magna 728 was their opportunity cost.

Limited Resources Unlimited Wants Scarcity Goods and Services Choices Opportunity Cost

scarcity not enough of something so people have to make choices Example: Amy must choose how to use her scarce time. Should she ride her bike or do her homework.

opportunity cost When you make a choice, your opportunity cost is the second thing you wanted most. Example: Mary chose pizza for lunch. Her second choice was a hot dog. The hot dog was her opportunity cost.

LET’S EXPLORE SCARCITY, CHOICE, AND OPPORTUNITY COST. with your social studies partner

human resources workers and their skills Example: Truck drivers, doctors, and teachers are human resources.

Buyer Sheet 1.For whom are you shopping? 2.What two things would you most like to buy? Did you buy your first choice? Why or Why not? 4.If not, what did you buy? 5.What was your opportunity cost?

Seller Sheet 1.For whom was the buyer shopping? 2.What 2 things did the buyer most want to buy? 3.Did the buyer purchase their first choice? Why or why not? 4.If not, what did the buyer buy? 5.What was he buyer’s opportunity cost?

Sellers should cut these 12 cards apart and place on top of your desk.

Buyer Sheet 1.For whom are you shopping? 2.What two things would you most like to buy? Did you buy your first choice? Why or Why not? 4.If not, what did you buy? 5.What was your opportunity cost?

Large Great Lakes Shipwreck Map Poster $18.00

Lighthouses of Great Lakes Puzzle $15.00

Michigan Rocks Collection $8.00

Video about the Building of the Mackinac $20.00

Michigan Wolverines Tabletop Football Game $15.00

Michiganopoly Game $25.00

Piston Party Pail $60.00

Mackinac Island Fudge (1 ½ Pound Gift Box) Box Includes (3) ½ pound bars - $22.45

Michigan T-Shirt $20.00

Teddy Bear with Michigan Map $15.00

Notepad and Pen $7.00

I’m a Michigan Kid Activity Book $8.00

Post-Activity Questions  How did this simulation help you understand choice?  What was your opportunity cost?  What did you learn in this activity?  In the simulation what were some of the techniques ‘sellers’ used to get ‘buyers’ to choose a certain product?

Imagine you own a small gift shop in the Upper Peninsula. It is late August and you have a lot of Michigan T-shirts left. You have to find a way to sell them before the end of the tourist season.

 Lower the price and put them on sale.  Offer a “Buy one, get one free” bargain  Offer a free Michigan pen when a person buys a T-shirt. What would you do to get people to buy the T-shirts?

incentive something used to get people to buy or produce a certain good or service Example: A sale is an example of an incentive. Incentives affect the choices people make. Incentives often persuade people to buy a certain product.

Limited Resources Unlimited Wants Scarcity Goods and Services ChoicesIncentives Opportunity Cost

In the simulation you showed how consumers face scarcity and choice. Producers of goods and services are also faced with scarcity and they have to make choices about how to use their resources.

There is a scarcity of fertile soil. There is a scarcity of good growing days. There is a scarcity of advanced machinery or capital resources. People have to choose another business other than farming. Farmers have to choose crops that will grow in a short growing season. The car companies have to choose to raise money to buy new machinery or close the factories.

 Incentives can affect the choices of producers of goods and services just like they affect consumers.  Sometimes incentives are offered to get a company or person to start a business in a certain place.  For example, the state of Michigan has been encouraging businesses in other states to start companies in Michigan.  What kind of incentives could the state of Michigan offer to get businesses to move here?

 The Michigan government collects taxes from businesses in order to pay for things like state parks, state highways, and state police.  One incentive the state has offered to businesses is ‘tax breaks’ which means if a business moves to Michigan it would pay lower taxes or maybe no taxes at all for a few years.  This incentive was recently offered to companies who make movies. As a result, several movie-making companies have begun new businesses here in Michigan.

MES/LEMONADE.HTM

Assessment Sam and Trudy Jones were teachers but they had always dreamed of owning their own business. They wanted to buy Michigan cherries and produce special cherry syrup for ice cream. There was a small, empty factory for sale near where they lived. They bought the factory and started to produce their cherry ice cream syrup. The cherry syrup was very popular! Soon, Sam and Trudy needed more cherries to help meet the demand. The next season, Michigan had a late freeze. The cherry crop was damaged. Sam and Trudy could not buy enough Cherries to make the syrup. They decided they had two choices. 1. Stop producing the syrup and close the factory until next season. 2. Use Michigan blueberries to make blueberry syrup instead of cherry syrup and remain in business. They decided to keep their business open and produce blueberry syrup this year.

Assessment What scarcity problem did Sam and Trudy have? Because of scarcity what two choices did they have? What choice did they make? What was their opportunity cost of making this choice?

Assessment – Sample Answers What scarcity problem did Sam and Trudy have? Because of scarcity what two choices did they have? What choice did they make? What was their opportunity cost of making this choice? A scarcity of cherries due to a freeze. Stop making cherry syrup and close the factory Make blueberry syrup and stay in business. They decided stay open and make blueberry syrup. Closing the factory until next season.