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

2. What is the fundamental economic problem?
Review
What is the fundamental economic problem?

3. Review: Scarcity
What is Scarcity?

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

5. Which one is really worth more?
Water Or Diamonds

6. Paradox of value
Paradox of Value: A situation where a necessity is worth less than a non-necessity
Value: refers to worth in dollars and cents OR what something is worth to you

7. Think about it….
Did you have to give up something to come to school today?

8. The NEXT BEST THING you could use your resource for.
Opportunity Cost
The NEXT BEST THING you could use your resource for.

9. 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.

10. Trade-Off Giving up some of one thing to get more of another
Trade-offs are all those things you could have done with your time and/or money but didn’t choose to do.

11. Try it: Opportunity cost vs. Trade off
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

12. T-chart Trade-offs Things I would do with my free time. Economic Term
Things I would do with my free time.
Economic Term
Opportunity Cost
Trade-offs

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

14. 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.
RDM = ≥

15. 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? 15

16. 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.

17. 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

18. Standard SSEF1 a. Define scarcity as a basic condition.
d. Define opportunity cost as the next best alternative
List 5 facts that will help you remember this lesson: