Standard
• SSEF1
• a. Define scarcity as a basic condition.
• d. Define opportunity cost as the next best
alternative
Review
What is the fundamental economic
problem?
Review: Scarcity
What is Scarcity?
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).
Which one is really worth more?
Water
Or
Diamonds
Paradox of value
• Paradox of Value: • Value: refers to
A situation where a
necessity is worth
less than a nonnecessity
worth in dollars
and cents OR what
something is worth
to you
Think about it….
• Did you have to give up
something to come to school
today?
Opportunity Cost
The NEXT BEST THING you could use
your resource for.
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.
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.
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
T-chart
Things I would do
with my free time.
1.
2.
3.
4.
5.
Economic
Term
Opportunity Cost
Tradeoffs
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.
Marginal Cost v. Marginal Benefit
• People make
decisions based on
costs and benefits
• The benefits must
equal or outweigh
the costs.
RDM
=
• Rational Decision
Making takes place
when marginal
benefits equal or
exceed marginal cost.
≥
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
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.
Cost – Benefit Analysis
• List 3 choices of things to do after
graduation.
• Use the following chart to complete a costbenefit analysis to decide where you should
go.
Choices
Cost
Benefits
The “cons” or
The “pros” or
negative
positive outcomes of
consequences if you
your decision
choose this.
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:
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