Questions:  Does Bill Gates have to deal with scarcity?  What about the United States Government?  Is it possible to eliminate people’s wants?

The Two Paths of Scarcity…  Because we know scarcity exists, there arises two distinct consequences: 1.) The need for a rationing device 2.) Competition

What is a rationing device?  A rationing device is a way to decide who gets what amount of available goods or resources (add to your definitions list). Obvious Example: MONEY!!! However, if money didn’t exist, do you think people would develop an alternative rationing device?

Competition  We live in a competitive world: Grades, sports, attention, more friends, nicest car…etc.  What is one thing you are competitive about?  Draw a flow chart showing the two paths of scarcity.

Opportunity Costs  Add this to your list of definitions: Opportunity Costs: the most valuable thing you give up when you make a choice (the next best thing). It can only be 1 thing!!! Trade-offs are basically the same as opportunity costs (when I choose one thing over the other, I am giving something up)

Opportunity Costs Continued  Opportunity Costs change the way people behave. Example: Ice Cream and cookies ○ Everyone knows that I love cookies. If my only dessert option was ice cream, most likely I would choose that. However, given the choice, I would choose cookies over ice cream every time. The opportunity cost of choosing ice cream is loosing out on cookies.

The Importance of Good Information…  We talked in class today about how important it was to have all the information before making a decision.  When one party holds more information than another, in economic terms, we call this asymmetric information (write that down in your definition list).

Examples of Asymmetric Information  The Used Car Salesman: A used car salesman wants to fetch a high price for a quality used vehicle. However, because the buyer doesn’t trust the salesman, and doesn’t know all of the information about the car, the buyer offers a much lower amount than the salesman is willing to accept, and there is no deal.

Insurance…  Insurance companies must always work with asymmetrical information. When offering car insurance, there is simply no way to know for sure whether one driver is a safe driver or not. Therefore they must charge a higher price than if they could divide the good and bad drivers.

Examples in Real Life…  Think of a time in your life when you either had more information than a person you were involved with, or someone withheld important information from you…how did that impact your decision?

Quiz Time!!!  True of False: Even rich people must deal with scarcity. Scarcity only ever takes one path. Money is an example of a rationing device. We live in a competitive world. Opportunity costs are basically the same thing as trade-offs. There can be multiple opportunity costs. Asymmetric information is when everyone is on the same page.