Fun Facts  On April 14, 1865, President Lincoln would sign into effect a piece of legislation that created the secret service- that was the day that he was shot by John Wilkes Both at Ford’s Theatre  On July 4, 1826 President’s Thomas Jefferson and John Adams both died on the same day  The Main Library at Indiana University sinks over an inch every year because when it was built, engineers failed to take into account the weight of all the books that would occupy the building.

Unit I: Economics Basics and Market Types Lesson II

Scarcity  Scarcity is the condition of not being able to have all the goods and services one wants  It exists because human wants for goods and services exceed the quantity of goods and services that can be produced from all available resources

Scarcity  There are not enough resources to meets the wants and needs of the planet  Therefore……Scarcity forces choices! Example: The amount of coal that can be mined is limited so people must find other sources of energy

Where Might I see this Every Day?  Consumers, businesses, and governments face scarcity and must make choices and incur costs Money is a resource that can be considered scarce- a finite amount exists  You (consumer) only have $100 and must decide if you want to buy the shoes you want or a new watch  Food Lion (business) must decide if it wants to build a pharmacy in the store or put a café` in that spot  Prince William County must decide if it wants to use its budget to fix roads or build a new school

Shortage and surplus  Both a shortage and surplus occur when there is a disparity between the amount demanded for a product or service and the amount supplied in a market.  A shortage occurs when demand exceeds supply Example: Buyers want to purchase 100 lbs of Coffee at $6/lb, but sellers are only willing to sell 80 lbs at that price  A surplus occurs when supply exceeds demand. Example: Sellers are willing to sell 100 lbs of Coffee at $7/lb, buy buyers only want to buy 80 lbs at this price

Scarcity is Not a shortage! ScarcityShortage  Not enough goods or resources to satisfy the world’s needs  There is not enough for consumers to have all they want  Exists regardless of price  Always exists  Cannot make more Example: Paintings of Pablo Picasso are scarce (they are non-renewable)  Price determined, man- made  People want to buy more than suppliers want to sell  Suppliers are “not willing” to make goods available  Will go away over time  Can make more Example: A bad crop causes a shortage in rice (good is renewable).

Choices  When making economic choices one should weigh the options and weigh the consequences  However, there are always going to be unintended consequences Example: When choosing a college you may not see what consequences it has on your future

Rational Choices  Economists assume that people’s choices are always rational  Rational choice = choosing the alternative perceived to have the greatest excess of benefits over costs.  If ALL choices are rational, then the challenge is to understand the decision-maker’s perception of costs and benefits.

Scarcity and shortages  Scarcity and shortages force choices  When choices need to be made, something is given up  What is given up is called the opportunity cost

Opportunity Cost  All choices, whether they are made by individuals or by groups of individuals have a cost associated with them; economists call this an opportunity cost.  Opportunity cost is the value of the benefits of the foregone alternative, or the next best alternative that could have been chosen, but was not.

 Top 2 alternatives: 1. Take friend to lunch 2. Walk around with $20 in my pocket. $20 is the opportunity cost of taking my friend to lunch Top 2 alternatives: 1.Take friend to lunch 2.Play golf $20 may be the price of lunch, but the opportunity cost is a round of golf Choice Opp. Cost

Opportunity Cost Analysis What was the 1 st decision you made this morning?

Opportunity Cost Analysis Alternatives: Perceived Benefits: Choice Opp. Cost Benefits Refused Decision Maker: YOU Get Up Now Don’t Get Up Now

Opportunity Cost Analysis Alternatives:Get Up NowDon’t Get Up Now Perceived Benefits shower breakfast don’t rush on time coffee Choice Opp. Cost Benefits Refused Decision Maker: YOU More sleep

Alternatives:Get Up NowDon’t Get Up Now Perceived Benefits shower breakfast don’t rush on time coffee Choice X Opp. Cost X Benefits Refused Opportunity Cost Analysis Decision Maker: YOU More sleep

Alternatives:Get Up NowDon’t Get Up Now Perceived Benefits shower breakfast don’t rush on time coffee Choice X Opp. Cost X Benefits Refused More Sleep Opportunity Cost Analysis Decision Maker: YOU More sleep

Alternatives:Get Up NowDon’t Get Up Now Perceived Benefits shower breakfast don’t rush on time coffee Choice X Opp. Cost X Benefits Refused Opportunity Cost Analysis Decision Maker: YOU More sleep

Alternatives:Get Up NowDon’t Get Up Now Perceived Benefits shower breakfast don’t rush on time coffee Choice X Opp. Cost X Benefits Refused shower breakfast don’t rush on time coffee Opportunity Cost Analysis Decision Maker: YOU More sleep

Characteristics of Cost  Costs are the results of decisions and they are what you give up  People choose and choices impose costs  All alternatives have benefits  These benefits are perceived differently by individuals  Costs are not consequences Consequences are unintended and happen as a result of the action taken

Go back to bed (decision)  More Sleep (benefit)  Less time to commute (cost)  No coffee (cost)  Pulled over for speeding (consequence)

Exit Ticket 1) What do choices always result in? 2) When does a shortage occur? A surplus? 3) True or False? Scarcity can go away over time when suppliers decide to sell more