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?