Scarcity and Choice

Key Terms
• Demand
• Supply
• Scarcity
• Trade-offs
• Opportunity Cost
• Marginal Costs/Benefits

Lesson Objectives

1. Define scarcity and give an example.

2. Establish causation: Scarcity necessitates choice; therefore trade-offs cannot be avoided.

o List and describe several methods of rationing.

3. Define opportunity cost.
o Differentiate between trade-off and opportunity cost: the cost is the "next-best" alternative.

4. Develop examples to illustrate the characteristics of cost.
o All costs lie in the future; the anticipation of future consequences shapes peoples' decisions.
o Emphasize that "consequence" and "opportunity cost" are different.

5. To the decision-maker, the relevant value of something is its marginal value.
o Define marginal as additional, or "a little more or a little less," or "the next unit."

Definitions
Demand - The relationship between prices and the corresponding quantities of goods or service buyers are willing to purchase at any given point in time.
Marginal benefit - The increase in total benefit that results from producing, purchasing, or consuming an additional unit.
Marginal cost - The increase in total cost that results from producing an additional unit.
Opportunity cost - The most highly valued sacrificed alternative; the value of the "next-best" choice.
Scarcity - Scarcity means that people cannot obtain as much of something as they want, without making a sacrifice or bearing a cost. Scarcity defines a relationship - between the amount of something we want and the amount that is available.
Supply - The relationship of prices to the quantities of a good or service sellers are willing to offer for sale, at any given point in time.
Trade-off - A choice between alternatives that reveals the opportunity cost of selecting one alternative over the other