GETTING DOWN TO Business: Scarcity and opportunity costs

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Questions:

Does Bill Gates have to deal with
scarcity?

What about the United States
Government?

Is it possible to eliminate people’s
wants?
The Two Paths of Scarcity…

Because we know scarcity exists, there
arises two distinct consequences:
 1.) The need for a rationing device
 2.) Competition
What is a rationing device?

A rationing device is a way to decide
who gets what amount of available
goods or resources (add to your
definitions list).
 Obvious Example: MONEY!!!
 However, if money didn’t exist, do you think
people would develop an alternative
rationing device?
Competition

We live in a competitive world:
 Grades, sports, attention, more friends,
nicest car…etc.

What is one thing you are competitive
about?

Draw a flow chart showing the two paths
of scarcity.
Opportunity Costs

Add this to your list of definitions:
 Opportunity Costs: the most valuable thing
you give up when you make a choice (the
next best thing).
 It can only be
1 thing!!!
 Trade-offs are basically the same as
opportunity costs (when I choose one thing
over the other, I am giving something up)
Opportunity Costs Continued

Opportunity Costs change the way
people behave.
 Example: Ice Cream and cookies
○ Everyone knows that I love cookies. If my only
dessert option was ice cream, most likely I
would choose that. However, given the choice,
I would choose cookies over ice cream every
time. The opportunity cost of choosing ice
cream is loosing out on cookies.
The Importance of Good
Information…

We talked in class today about how
important it was to have all the
information before making a decision.

When one party holds more information
than another, in economic terms, we call
this asymmetric information (write that
down in your definition list).
Examples of Asymmetric
Information

The Used Car Salesman: A used car
salesman wants to fetch a high price for
a quality used vehicle. However,
because the buyer doesn’t trust the
salesman, and doesn’t know all of the
information about the car, the buyer
offers a much lower amount than the
salesman is willing to accept, and there
is no deal.
Insurance…

Insurance companies must always work
with asymmetrical information. When
offering car insurance, there is simply no
way to know for sure whether one driver
is a safe driver or not. Therefore they
must charge a higher price than if they
could divide the good and bad drivers.
Examples in Real Life…

Think of a time in your life when you
either had more information than a
person you were involved with, or
someone withheld important information
from you…how did that impact your
decision?
Quiz Time!!!

True of False:





Even rich people must deal with scarcity.
Scarcity only ever takes one path.
Money is an example of a rationing device.
We live in a competitive world.
Opportunity costs are basically the same
thing as trade-offs.
 There can be multiple opportunity costs.
 Asymmetric information is when everyone is
on the same page.
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