Scarcity, Choice and CostChapter Eight Notes Part Two

Scarcity, Choice and Opportunity Cost: _______________, _______________ and __________________ are sometimes referred to as the

basic trilogy of economics because of the strong interrelationships between these fundamental concepts.

Decisions ... How many of you never seem to have enough time to do all of the things you want to do? Imagine for some reason you find yourselves with an hour of free time today that you did

not expect to have. What might you do with this free time?

LIST OF POTENTIAL ACTIVITIES• • • •

Why can’t you do all of these things? Because ________________________________________ are limited! ________________________ is the condition of not being able to have ALL of the good and services one wants. Scarcity exists because there are never enough available resources to produce all the

goods and services people want. ________________________experiences scarcity.

Why is the second choice placed under cost?Opportunity Cost The second choice is placed under cost because in choosing the first choice you lost the

opportunity to do the second. This is what is known as _____________________________ – or

________________________________________________________________________ For example: Let’s say you decided to spend your extra free hour talking with friends.

The opportunity cost could be that you didn’t spend that hour studying for a test. Instead of getting an “A” you got a “B”. Talking with your friend on the phone for an hour “cost” you a chance at the “A”.

__________________________________________________________________ _________________________________________________________________.

Tradeoffs: A __________________ involves giving up some of one thing to get more of another. Tradeoffs happen to you every day ... There are tradeoffs with every spending

decision you make. For example: A tradeoff might be deciding to go to Vegas with your friends. In order to do it - you decided to give up fast food and movies for a few months to save up the money.

Choice Cost Choice Cost

Planning Huron’s Next School Dance

Your class has been engaged in various fund-raising projects during the past several years, and you now have a total of $9,635 to spend on a big bash – your last school dance. You may not spend more than this amount on the dance, but you do not have to spend all of it on the dance. Any remaining money can be used for a class project, designed to help your school or community.

You have decided that there are three categories of expenditures for the dance: 1) Hiring a band or disc jockey, 2) renting a place to hold the dance, and 3) providing refreshments and decorations. A committee has provided the following information:

Music for the Dance:• Disk Jockey

– $1,000 Pig Sty – cheap but good– $2,000 Good Vibrations – excellent music selections and sound system.

• Live Bands– $2,500 Good Ol’ Boys – good progressive country– $4,000 Angelic Sinners – good hard rock– $5,000 Our Rage – a popular group featuring rap and hip hop music– $6,500 New Sensation – nationally known group with chart success

Places Available for the Dance:– $200 for the School Gym– $600 for the American Legion Hall– $1,500 for the Holiday Inn Banquet Hall– $2,000 for the Hilton Hotel Banquet Hall– $3,000 for the Barton Hills Country Club Dance Hall

Refreshments and Decorations for the Dance– $800 for School Service Club prepared sandwiches, chips etc.. With limited decorations.– $1,200 for a catered party with pizza, wings, sandwich platters and decorations.– $3,000 for a catered party with pizza, chicken fingers, salad bar, pasta bar, and more extravagant decorations.– $5,000 for a packaged deal – steak and or lobster dinner served at the table before the dance, open

drink/refreshment/snack stand available all night,beautiful decorations on the tables and in the dance hall. Meet in groups of two to three and determine the dance budget and what class project you’ll

contribute extra money to should you have left to do so:

• NAMES OF GROUP MEMBERS: _______________________________________________________• MUSIC DECISION _________________________________________________________________• DANCE HALL DECISION ____________________________________________________________• FOOD/DECORATIONS DECISION: ____________________________________________________• TOTAL COST FOR DANCE: __________________________________________________________• AMOUNT OF MONEY LEFT OVER: ____________________________________________________• CLASS PROJECT DECISION: ________________________________________________________

What tradeoffs did your group make? _____________________________________________ ____________________________________________________________________________.

What were the opportunity costs of your group’s decision? (Second-choice in each category) _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________

How did group preferences influence decisions? Were compromises reached because you had more than one person involved in the decision-making process? Explain? ________________________ __________________________________________________________________________________________________________________________________________________________

In what ways is this problem similar to the spending decisions that families have to make in their personal budgets? Can your group come up with examples of opportunity costs and tradeoffs that you made in your personal budgets? ________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________