The Foundation of
Economics
Obj: 1. Students will understand how scarcity drives all decision-making
2. Students will understand opportunity cost and how it is
calculated
ES: C-7 State implications and consequences of scarcity
1.
2.
3.
4.
Agenda:
Poll Everywhere
Scarcity Demo
Presentation
Opportunity Cost
Read/Sheet
HW: Mod 1 Review ?s,
Opportunity Cost Sheet,
Bring Scarce item
Scarcity is King
• Our world is imperfect…we have unlimited wants trying to be fulfilled
using our limited resources
• Why is gold valuable? Why do people value clean air/water? Time?
• THE ECONOMIC PROBLEM!!!
Trade-offs
• When decisions are made, people are always confronted with
multiple alternative actions
• Example: Waking up for school…
• The ultimate decision should be the most efficient, profitable
outcome
Opportunity Cost
• The foregone benefit of the next best alternative when resources are
used for one purpose rather than another
• What you are missing out on because of the activity you chose to
partake in
Example: You (or most of you) are seniors
about to graduate. When August hits you will
be faced with the decision to attend college or
enter the workforce. You could either a) spend
the $30k a year to attend a University, or b)
take a job working retail in the KOP mall for
$30k/ year
What is your opportunity cost?
Explicit and Implicit Costs
• Explicit—what you pay for something
• Implicit—opportunity cost of using your own resources rather than
selling them to someone else
• Example: Cost of college???
• These 2 types of costs combined make up opportunity cost
Economic vs. Accounting Profit
Lets examine a scenario…McDonald’s manager making $80,000.00 per
year decided to leave the restaurant they’re managing and open their
own restaurant. In their first year as owner, they make $80,000.00
Opportunity Cost

• Explicit = rent, franchise
tag, financial services,
loan…
• Implicit = missing out on
his regular $80,000.00
salary, time, effort
Accounting Profit
Economic Profit
$80,000.00
$00.00
***accounts for time
as well as financial
costs
LeBron James is a Master Opportunity Cost
$13 million contract with
Cleveland
Cavaliers/sponsorship
with Nike and Coke
Attending any college in the
country on scholarship to play
basketball.
VS.
So…A Kid Walks into a Candy Store with $5
• What are their
choices?
• Trade-offs?
• Opportunity cost?
• Explicit costs?
• Implicit costs?
• Accounting profit?
• Economic profit?