Unit 2, Lesson 3 Scarcity and Choices AOF Business Economics Unit 2, Lesson 3 Scarcity and Choices Copyright © 2008–2012 National Academy Foundation. All rights reserved.

The concept of scarcity says that nothing is free Lunch Are the best things in life free?

Scarcity means you can never have enough of something TradeoffsWhat you give up by choosing one alternative over another Opportunity CostThe value of the next-best alternative UtilityThe benefit or satisfaction gained from the use of a good or a service

We make choices by weighing benefits against costs Cost-Benefit Analysis: The practice of weighing the benefits or gains against the opportunity costs incurred from a particular choice in order to make the best decision. Evaluate the benefit of each likely option (understand each options utility) Look at the Constraints (time, resources, technology) and tradeoffs for each option. Choose the option that gives the biggest benefit while not exceeding their resources. Most economic decisions are not all-or-nothing situations; rather they tend to work across a number of options with different benefits and opportunity costs. The main idea is that every choice presents different options an that we make our decisions by weighing the different benefits and opportunity costs of each options.

iTunes vs. Lunch Objective: Get the most utility from your $3 Constraint: You only have $3

Consciously or unconsciously, we are always performing cost-benefit analyses when making decisions Building your own cost-benefit analysis Example of financing a new car vs. buying a used car

Vocabulary constraints The resource limitations that scarcity places on production. economic efficiency The production of the desired result with the minimum amount of effort, expense, or waste while accounting for the costs and benefits associated with the decision. opportunity cost The value of the next-best alternative, which was given up when the preferred alternative was chosen.

Vocabulary production possibility frontier A graph that shows the different amounts of two goods that an individual or a group can efficiently produce in a certain interval of time with limited productive resources when producing with optimal technical efficiency. scarcity The situation that exists when there are not enough resources to meet human wants and needs. tradeoffs The alternative given up when making a choice. utility The benefit or satisfaction gained from the use of a good or a service.