1. Scarcity and Making Rational Decisions

2. Answer this question in at least 4 sentences:
What do you know?
Answer this question in at least 4 sentences:
What should you consider when making a major life decision?
Can you define these terms?
Scarcity
Benefit
Cost
Incentives
Rational
Allocate

3. By the end of this lesson you should know….
Essential Questions
Why do people have to make decisions?
How do you determine the use of productive resources you own?
How does making a budget demonstrate the concept of scarcity?
Why should people weigh the advantages and disadvantages of different alternatives when making choices?
What does it mean to be “rational”?
How do we determine that decision we make is “rational”?
What methods can we use to help us make our choices more rationally?
How does self-interest influence human decision-making?
Terms
Scarcity
Opportunity cost
Incentives
Durable
Microeconomics
Macroeconomics
Standard of Living
Productivity
Cost versus Benefit
Rational
Allocate
Invest

4. Georgia Performance Standards
SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.
Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources.
c. List a variety of strategies for allocating scarce resources.
d. Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.
SSEF2 The student will give examples of how rational decision-making entails comparing the marginal benefits and the marginal costs of an action.
b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.
SSEPF1 The student will apply rational decision making to personal spending and saving choices.
a. Explain that people respond to positive and negative incentives in predictable ways.
b. Use a rational decision making model to select one option over another.
SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced by investment in factories, machinery, new technology, and the health, education, and training of people.
b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth.
c. Give examples of how investment in education can lead to a higher standard of living.

5. BASIC ECONOMICS TERMS YOU MUST KNOW
Microeconomics- the study of decision making and behavior of individuals and firms
Macroeconomics – the study of decision making and behavior of entire economies and societies.

6. BASIC ECONOMICS TERMS YOU MUST KNOW
Goods – things we can touch – notebooks, cars, clothes
Durable Goods – goods that last at least 3 years – car, washing machine
Nondurable goods – goods that do not last at least 3 years – book, pants

7. MORE BASIC ECONOMICS TERMS YOU MUST KNOW
Services – things provided to us for a price or fee – haircut, oil change
Wants – goods and services that are NICE to have…iphones and manicures.
Needs – NECESSARY for survival – food, clothing and shelter

8. Our wants are unlimited but resources are scarce, so we must make choices(decisions).
RATIONAL choices …..when we make choices we have:
Trade-Offs - ALL the alternatives in a decision/choice
Opportunity Cost – The SECOND best alternative when a decision is made.

9. What is a Rational Decision?
Rational means consistent with logic; sensible
A rational decision is not just a decision made by evaluating all choices, it is a decision that considers reason for making the decision.
Decisions should be made taking individual and national goals into account because of scarcity.
Scarcity is the concept that people and countries have unlimited wants but limited resources. This forces people to make choices and when you make a choice, there is always a cost.
Whether it is a country, a business or an individual, every time a choice is made there will be an opportunity cost. This is why making a ration decision is so important.

10. A rational decision is made when BENEFITS outweigh the COSTS… Why must we make rational decisions? Because of SCARCITY – resources are limited and must be used efficiently to satisfy as many unlimited wants and needs as possible.

11. We make 100s of decisions everyday…
We make 100s of decisions everyday…. What method(s) can I use to make rational decisions?
VIDEO

12. HOW DO WE MAKE THE BEST CHOICES?
FULLY CONSIDER THE COSTS AND BENEFITS OF OUR DECISIONS.
EXAMINE OPPORTUNITY COST – VALUE OF THE SECOND BEST ALTERNATIVE GIVEN UP FOR A DECISION
TRADE-OFFS – ALL OF THE ALTERNATIVES WE HAVE IN A CHOICE

13. OPPORTUNITY COST CAN BE A
SPECIFIC MEASUREMENT

14. It helps you:
Determine some of the opportunity costs for your decision
Make a better decision
Always desirable b/c it is 2nd BEST choice

15. The opportunity cost of a decision can be examined (measured) by using a
DECISION-MAKING GRID
Used to measure the opportunity cost of one decision over another.

16. Decision making grid State the goal
Identify the alternatives you are deciding among
List and rank the criteria you are judging the alternatives by
Weigh the benefits and the costs by evaluating the alternatives according to the criteria
+ if it meats criteria and – if not
Choose based on frequency and placement of the pluses and minuses
Re-evaluate your decision

17. How should Kristina make a rational decision with her resources?
Micro Example
Kristina just won $1000 check from an essay contest. It is almost summer and the first thing that came to her mind was to take a vacation with the money, but she does have other options. She is going to college in the Fall and her car needs breaks and new tires.
How should Kristina make a rational decision with her resources?
Things to consider:
Goals
Current situation
Important Criteria for the results you desire
The cost and benefit of each decision

18. Micro Example cont..
What are Kristina’s wants? What are her limited resources?
If you were in Kristina situation, what would be your top 4 options for spending the money?
How would Kristina explain choosing to go on vacation with the money?
How would Kristina explain spending the money to fix up her car?
Kristina just won $1000 check from an essay contest. It is almost summer and the first thing that came to her mind was to take a vacation with the money, but she does have other options. She is going to college in the fall and her car needs breaks and new tires. Answer the following Questions:

19. No additional expense above $1000
Decision Making Grid
One tool that can be used to evaluate decisions using important criteria is a decision making grid.
List your top 4 choices
Determine the criteria important to your current goals and/or situation (list criteria in order of importance)
Complete the chart by checking the criteria box if the answer is yes
Will help make money
Durable Good/Service
No additional expense above $1000
Multiple Uses
Totals
Vacation
Car Repair
Computer for college
Prom

20. Decision Making Grid
Based on the results of using the decision making grid, what should Kristina choose? What is her opportunity cost?
Will help make money
Durable Good/Service
No additional expense above $1000
Multiple Uses
Totals
Vacation
Car Repair X 3
Computer for college
Prom 1
Why should she choose the car over the computer if
they scored the same?

21. Use cost benefit analysis to make a rational decision
Use cost benefit analysis to make a rational decision. Imagine in Kristina’s case that she couldn’t decided to buy the computer or the car repair. That both of them were equally desirable. How should she choose between the two? If both options are equally beneficial but the car repair was $500 and the computer was $650, then Kristina should pay for the car repairs because she gets the maximum benefit for the lowest cost. Cost Benefit analysis –weigh all the benefits of a decision against the costs – decide based on benefits greater than costs.

22. You are weighing
COSTS versus
BENEFITS
Rational decisions occur when the marginal benefits of an action are equal to or greater than the marginal costs.

23. Deciding whether to do or use one additional unit of some resource
THINKING AT THE MARGIN
Deciding whether to do or use one additional unit of some resource
Small, incremental adjustments to a plan of action

24. Compare the costs & benefits
THINKING AT THE MARGIN
Compare the costs & benefits
Decide extra cost or benefit of doing something

25. YOU HAVE TO BE THE JUDGE OR
SLEEP
STUDY
MONEY

26. Decision making process
Define the problem.
List the alternatives (trade-offs)
Identify your criteria – important considerations you have in making the decision.
Evaluate your alternatives – what are the ++++s and s of each choice. Benefit of each choice? Cost of each choice? Pros? Cons?
Make a decision.

27. 5 STEPS - P.A.C.E.D
P = what is the problem?
A = what are the alternatives? Trade-offs?
C = what are the criteria?
E = evaluate the alternatives.
D = make a decision.

28. PROBLEM
What decision are you trying to make?
What is the issue at hand?
ALTERNATIVES
What actions are you considering?
What options are available to you in this decision?
CRITERIA
What goals do you hope to accomplish in making your decision?
What characteristics are you looking for in your result?
Which criteria are more important than others? How do you rank them?
EVALUATE
Evaluate each alternative on the basis of each criterion.
Give each alternative a plus(+) or minus (-) according to how well its meets each criterion.
DECISION
Calculate the net value of each alternative; which alternative best meets your highest-ranking criteria?
What do you gain with each alternative?
What do you give up with each alternative?

29. Now we practice……
With a partner, complete the decision making process for Maria on the worksheet.
Create your own decision making grid on a problem or decision you have made.
Turn in your work.

30. PACED PRACTICE
Decide on a problem you must solve or a decision you must make: Work? College? Work or play ball? Car to buy?
Evaluate AT LEAST 3 alternatives.
Based on AT LEAST 3 criteria you have set.
Make your decision
At the bottom of the page, write WHY this is a rational decision for you.

31. Pick 3 and Answer these Questions
Why do people have to make decisions?
How do you determine the use of productive resources you own?
How does making a budget demonstrate the concept of scarcity?
Why should people weigh the advantages and disadvantages of different alternatives when making choices?
What does it mean to be “rational”?
How do we determine that decision we make is “rational”?
What methods can we use to help us make our choices more rationally?

32. We still need to … Define these Terms Allocate Incentives Invest
SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced by investment in factories, machinery, new technology, and the health, education, and training of people.
b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth.
c. Give examples of how investment in education can lead to a higher standard of living.
SSEPF1 The student will apply rational decision making to personal spending and saving choices.
a. Explain that people respond to positive and negative incentives in predictable ways.
b. Use a rational decision making model to select one option over another.
Define these Terms
Allocate
Incentives
Invest
Standard of living
Productivity

33. Investment is Key
Invest- to devote resources with the expectation of profit or a material result
Allocate- distribute for a specific purpose
Standard of living- quality of life based on the level of wealth, happiness, comfort, material goods and necessities available
For both individuals and governments the key to growth is investment. Goals should always be involved in the equation when making decisions. Allocating resources to education, technology and equipment can lead to increased growth in the future.
For the individual and the business this can mean a higher income or more profit.
For governments this can mean a higher standard of living for the population.

34. Individual Investment
Based on this data published in March from the US Bureau of Labor Statistics
What are the benefits of investing time and money in your own education?
What are the costs of investing your resources in a different alternative?

35. Individual InvestmentHS
Master’s
Income
$2,672
$5,304
Transportation
Car/Bus
Insurance
Repairs
Gas
Food
Groceries
Eating Out
Living
Rent/Mortgage
Cable
Phone
Utilities
Clothing
Fun
Accounts
Credit Cards
Loans
Savings
Making rational decisions with money involves creating a budget. Complete the monthly budget sheet on the right using the data from the previous chart for both a high school graduate and a person with a Master’s Degree. $2,672 per month for HS Grad $5,304 per month for Masters

36. Individual Investment
Answer the following question in groups: What is the difference in your standard of living with a HS diploma versus a Master’s Degree? (think more than just numbers) What incentive do you personally have to continue your education after High School?
Incentive- something that incites action or effort; can be positive-reward or negative-punishment

37. How can this investment increase a countries productivity?
Government Investment
Click this link to see how countries compare in renewable energy investment.
Productivity- the amount of output produced with a given amount of resources
The most important factor in economic growth is using resources efficiently and increasing productivity.
Governments invest in education, research and development in order to increase productivity which will lead to efficient workers, more productive resources, more producers, more jobs and more money flowing through the market.
This increases the standard of living for the whole country.
One example of an area of investment for countries around the world is renewable energy.
How can this investment increase a countries productivity?

38. Can you… Answer these Questions? Complete these Standards?
Why do people have to make decisions?
How do you determine the use of productive resources you own?
What did our school give up when it chose to _____(fill in a local school decision students find interesting)____________________?
How does making a budget demonstrate the concept of scarcity?
Why should people weigh the advantages and disadvantages of different alternatives when making choices?
What does it mean to be “rational”?
How do we determine that decision we make is “rational”?
What methods can we use to help us make our choices more rationally?
How does self-interest influence human decision-making?
Define These Terms?
Content Terms
Scarcity
Opportunity cost
Incentives
Durable
Microeconomics
Macroeconomics
Standard of Living
Productivity
Academic Terms
Rational
Allocate
Invest
Complete these Standards?
Explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.
List a variety of strategies for allocating scarce resources.
Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.
Give examples of how rational decision-making entails comparing the marginal benefits and the marginal costs of an action.
Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.
Explain how productivity, economic growth, and future standards of living are influenced by investment in factories, machinery, new technology, and the health, education, and training of people.
Give illustrations of investment in equipment and technology and explain their relationship to economic growth.
Give examples of how investment in education can lead to a higher standard of living.
Apply rational decision making to personal spending and saving choices.
Explain that people respond to positive and negative incentives in predictable ways.
Use a rational decision making model to select one option over another.

39. Practice Questions
An individual decides to pay $8 to see a movie instead of buying an $8 meal. What is the opportunity cost of the movie?
the satisfaction missed by not eating the meal
the $8 paid to see the movie
the time spent watching the movie
the satisfaction received by going to the movie
Which of the following is MOST important for economic growth?
efficient use of resources
ample tax revenues
availability of resources
a large labor force
What basic economic problem do both higher-income nations and lower-income nations have in common?
too many unskilled laborers
lack of capital goods
too much government
scarcity of resources
Which of the following is an example of a microeconomic decision?
whether to increase or decrease the money supply
whether to increase or decrease taxes
how to reduce the unemployment rate
how many hours an employee should work each week

40. Answers D A