1. ECONOMIC PRINCIPLE #1… PEOPLE FACE TRADEOFFS
Scarcity exists and it doesn’t go away. Because resources are limited, people must make choices.

2. Scarcity Isn’t Optional
Fact: Resources ARE limited
Land (natural resources)
Labor (human effort)
Capital (buildings, machines, & technology)
Entrepreneurship (willingness to risk)
Time
Fact: Human desires are boundless

3. Why CAN’T we have all we want?
Available resources are limited
Land (57,506,000 sq mi. & not even all habitable!)
Labor (6.7 billion souls x 24 hrs a day)
Capital (less than ∞, trust me)
Entrepreneurship (not everybody is Bill Gates)
Human desires are boundless : 6.7 billion & increasing
We can never quite have it all, there is always a desire lurking in the back of our mind. We WILL be hungry again tomorrow, we will be thirsty this afternoon. We will salivate over that next chocolate bar even if we had eaten a thousand of them to this day.
It is our unfortunate predicament that the available resources will never quite match our desires and needs.
What do we call this? Scarcity.

4. Scarcity Choice Although we cannot have it ALL…
…we still can have SOME .
So:
What shall we have?
How much of it?
How shall we produce it?
Who will get it?
Mention at the end: some choices are wiser than others, i.e. some deal better with that problem of scarcity. That is a segueinto talking about growth as the most efficient way to fight scarcity and poverty because if the institutions are chosen wisely, then there will be growth. If the institutions are not chosen wisely, then there will be blood. Literally.

5. SCARCITY CHOICE How Do You Know When Something Is Scarce?
Scarcity Forces You to
CHOOSE
SCARCITY CHOICE

6. ECONOMIC PRINCIPLE # 2… PEOPLE ECONOMIZE
People choose the alternatives that they perceive to offer the greatest excess of benefits over costs.

7. Scarcity IS: Even in the face of abundance . . .
What’s scarce when you’re
in the Mall of America?
at the all-you-can-eat buffet?

8. IT’S TIME FOR… Who gets the Happy Meal?
Stop presentation to play scarcity activity

9. ECONOMIC PRINCIPLE # 3… ALL CHOICES INVOLVE COSTS
The opportunity cost of a choice is the
foregone alternative, the (benefits of the)
alternative that was given up.

10. Opportunity Cost Analysis
What was the 1st decision you made this morning?

11. Opportunity Cost Analysis
Decision Maker: YOU
Alternatives:
Get Up Now
Don’t Get Up Now
Perceived Benefits
Choice
Opp. Cost
Benefits Refused

12. Opportunity Cost Analysis
Decision Maker: YOU
Alternatives:
Get Up Now
Don’t Get Up Now
Perceived Benefits
Shower bkfst
don’t rush
On time coffee
Choice
Opp. Cost
Benefits Refused
More sleep

13. Opportunity Cost Analysis
Decision Maker: YOU
Alternatives:
Get Up Now
Don’t Get Up Now
Perceived Benefits
Shower bkfst
don’t rush
On time coffee
Choice X
Opp. Cost
Benefits Refused
More sleep X

14. Opportunity Cost Analysis
Decision Maker: YOU
Alternatives:
Get Up Now
Don’t Get Up Now
Perceived Benefits
Shower bkfst
Coffee don’t rush
On time
Choice X
Opp. Cost
Benefits Refused
More sleep

15. Characteristics of Cost
Costs are the results of ACTIONS
Costs are TO people; things have no cost
All costs lie in the FUTURE
Costs are frequently not monetary (although we may value them in dollar terms)

16. Opportunity Cost =the Next-Best Alternative
Identifying Opportunity Cost:
What are the considered alternatives?
Prioritize the alternatives – What is the best and what is the “next-best”?
What would you do – not what could you do?
What does the decision-maker perceive to be the benefits of each alternative?

17. Because people’s values differ, the opportunity cost of the same decision may differ from person to person.

18. People’s Choices are always RATIONAL
Rational choice = choosing the alternative that has the greatest excess of benefits over costs.

19. If ALL choices are rational, then the challenge is to understand the decision-maker’s perception of costs and benefits.

20. Things to remember:
Opportunity cost isn’t EVERYTHING you give up, just the most valued (or “next best”) thing.
Opportunity cost helps explain all human behavior, not just behavior in businesses or markets.