Lesson Objectives All students will understand Most students will The concept of scarcity and choice Most students will be able to apply this to potential trade-offs Some students will Understand the complexities of trade-offs faced by government at all levels Progress Arrow

Market Forces The private sector is led by market forces By Market forces we mean Demand and Supply interacting to determine price, output and the allocation of resources.

Scarcity and Choice The problem of scarcity is key to Economics. Human wants are unlimited – but resources are NOT unlimited, there is a finite amount of resources. Because of this consumers have to make choices, and these decisions will be based on individual preferences Opportunity Cost becomes important when making these choices Some resources are more scarce than others

Consumer Sovereignty Consumers choose to purchase the products they value the most, they make choices based on the value they see in the product This suggests that consumers ultimately decide what will be produced, by choosing what to buy This power is called consumer sovereignty

Task

Task Using case study on previous page answer the following Is water a Need or Want? Wright a paragraph on your mini whiteboards to explain this, include the word scarcity in your answer

Opportunity Cost Definition The cost expressed in terms of the next best alternative foregone or sacrificed. Note - The language used here is a bit technical but it expresses a very easy but often misunderstood principle. We need to unpick the definition to help get the understanding right. Cost implies something is being sacrificed or involves having to give up something. We often use the term 'cost' in the wrong way. How many times have you used 'cost' when you mean 'price'?

Opportunity Cost Is something given up when we make a choice E.g. If I have £1 in my pocket and feel hungry I might buy a Mars bar, but I also feel like buying a Snickers bar, but cannot afford both! I decide to buy the Mars bar – the financial cost is 60 pence – but what is the opportunity cost? The opportunity cost is the Snickers bar – the thing given up due to the scarcity of my money

Task The Mars/Snickers example is very basic, but this concept can be much more complex, e.g. On your list the potential opportunity cost of the following The Government buying a new aircraft carrier for the Navy Beauchamps High School building a new 6th Form common Room

Trade-Offs Opportunity Cost draws attention to the trade-offs involved in making decisions Limited resources means we can’t have everything we want so we have to make decisions that involve trade-offs Progress Arrow

Trade Offs When decision makers are debating a decision they will consider positive economic factors and normative economic factors. Positive statements are testable as true or false, backed by facts Normative statements are based on opinions and viewpoints – sometimes called value judgements

Task Show your understanding pg 4 – on your Exam style Question pg 5 – Q2 & Q4