1. 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.

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

3. 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

4. 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.

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

6. 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

7. 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.

8. 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.