Transcript Tuesday, August 13,th 2013

EQ: What is scarcity? What is the difference between
opportunity costs and trade-offs?
Agenda:
1. Lecture: Scarcity, Opportunity Cost, and Trade-offs
2. Video: Opportunity Cost
 Forces us to make decisions.
Two definitions of scarcity. To be scare a resource only
has to meet ONE of the following:
1.
Limited quantities of resources to meet unlimited
demands
2. More than one valuable use
 Trash
 Depends on if it is a landfill, or if someone turns it into
“treasure”
 Land
 Yes
 Pollution
 No
 iPads
 Yes
1.
Old economics textbooks collected in a bookcase
near the teacher’s desk with a sign that says “Free
books, take as many as you want.” The books have
been there for three years.
No
2.
Old economics textbooks collected in a bookcase
near the teacher’s desk with a sign that says “Free
books, take as many as you want.”Another sign
posted in the hallway says “$10 paid for any recycled
textbook. Bring books to the Principal’s office.”
Yes, more than one use
3.
One economics textbook, five students who wish to
do well in the economics course, and an important
test in class the next day.
Yes
4.
Petroleum in Japan, a country without its own oil
fields and without oil reserves.
Yes
5.
Petroleum in Saudi Arabia, a country with many oil
fields and oil reserves.
Yes
 Everyone, even Bill Gates, deals with scarcity.
 What is scarce for Bill Gates?
 Time, knowledge
 http://www.reffonomics.com/TRB/chapter1/opportuni
tycost.swf
 Watch video titled “Opportunity Cost”
 What’s the point? Why should economists and YOU
care?
 Your choices have more implicit costs, usually hidden,
than explicit costs. You need to consider them when
making decisions.
 Imagine you scored a ticket to the Super Bowl. You paid $200
for your ticket, a stretch for your budget but worth it for a
once-in-a-lifetime opportunity. You sit down in your seat
next to some schmuck who admits he paid $5000 to a scalper
for his ticket. Five grand! That's madness.
 An annoying economist is sitting on the other side of you.
He includes himself in the conversation and says, “Your
ticket just cost you five grand, too, even though only $200 in
cash ever left your wallet.”
 Explain why the economist is correct.
 If the schmuck next to you was willing to buy a seat for
$5000, then you could have sold yours at that price,
too. The opportunity cost of you using your ticket is
the five grand you didn't make by scalping it.
 Hope it was a good game!
Research the explicit costs of attending college next
year. Look at the costs associated with your #1 college
choice.
2. Next, give at least 2 alternatives to attending college.
Circle the one that is that is the opp. cost. Which
ones are considered tradeoffs?
3. Calculate (or list, if difficult) the opportunity
(implicit) costs in attending college.
4. Does this activity make you think more about the
costs involved with your decisions? Why or why not?
1.
After graduating with an accounting degree, you decide to
become a rock star. Your opportunity costs include which of
the following?
I.
Goods forgone to build and furnish a home studio in which to
practice and record
II. Tuition costs
III. Forgone income as an accountant
A.
I only
B.
II only
C.
I and II only
D.
I and III only
E.
I, II, and III