Economic Magic: Creating Something From Nothing

 Because all of us are always dealing with scarcity, we must constantly decide how to cope. Typically we find that some resources are more valuable than others. Things that we have to decide on include what should we produce, how should we produce it, and for whom will it be produced?

Essential Question  How might a society best allocate scarce resources?

Concepts  Distribution  Economics  Production  Resources  Scarcity  Opportunity Cost

CASTAWAY clips

Read the story…  What are your priorities?  Immediate safety (first aid)  Shelter from elements  Water  Protection (from danger)  Rescue  Food  Any others???

Opportunity Cost As you make choices about how to survive, consider the consequences of each choice. These consequences include anything you might give up in making a particular choice. Economists call this analysis of opportunity cost, because using a resource in one way may “foreclose” (or not allow) the opportunity to use it in any other way.

Definition In any choice, the opportunity cost is… the highest-valued alternative that must be foregone (given up) when another alternative is chosen

Examples  If you use a kayak paddle for firewood, you cannot use it as a fishing pole.  If you use drinking water collected from the rain for taking a shower, you cannot use it to satisfy your thirst.

Opportunity Cost is not…  A list of ALL the things you could have done with or used the paddle for.  It IS only the value of the very next best alternative, or your number 2 ranking on a list, or the second thing you would have done with it.  You can’t make furniture, burn it, use it as a bat, pick your teeth with it AND dig a hole in the sand. The opportunity cost is only the highest valued alternative, not all of the alternatives!

Essential Question  How might a society best allocate scarce resources?

For a three hour tour…  I’ll need 5 volunteers who like to act

Survival Plan handout  As a group you need to decide how to survive. Your resources are listed. You must think about:  What will you produce?  How will you make it?  How will you share it?

Priorities…what should you do first??  Immediate safety  Shelter from the elements  Warmth (you’re soaking wet in Alaska!)  Water (freshwater)  Protection (against mother nature)  Rescue, and finally…  Food

Questions for your group to consider…  What did you make to eat or use for a shelter?  How did you make it?  Who made it?  What natural resources were used?  What tools were used?  Did everyone get a share of what was produced?

More questions for your group  Did the goods produced go only to those who helped to produce them?  Did a leader decide who got what? If not, how was the decision made?  Did those who did no work or help the group get any of the goods produced? Why or why not?

Basically, your group had to answer…  What should we produce?  How should we produce it?  Who should get (or not get) what we produce? These are the same questions all economies have to answer.

And don’t forget…  Opportunity Cost:  The value of the next best alternative Or a fancier definition…  the highest-valued alternative that must be foregone (given up) when another alternative is chosen

Basically…  We all face scarcity.  Because of scarcity, we have to make choices.  All choices have costs.  There are no “free lunches” – somebody pays for it  TINSTAAFL

3:52Seinfeld TINSTAAFL

Essential Question  How might a society best allocate scarce resources?