Economics: Opportunity Cost, Scarcity, and Factors of Production

Opportunity Cost

Opportunity Cost is what needs to be given up to get something.

Trade-Off

Giving up 1 or more benefits to gain another.

Opportunity Cost For Consumers

Choices that Consumers Face include what product to buy and how to spend time.

Opportunity Cost For Producers

Choices that Producers Face include what to make, how to make it, and where to make it.

Economic Decision-Making Grid

A framework to evaluate the benefits and drawbacks of choices.

Marginal Cost

The additional cost of adding 1 unit.

Marginal Benefit

The additional benefit of adding 1 unit.

Marginal Analysis

Compare the marginal benefit and marginal cost to make decisions.

MB > MC

Indicates that more units should be added when marginal benefit exceeds marginal cost.

Trade-Offs & Opportunity Costs Example

You buy a $250 set of Beats Headphones.

Trade-Offs in Business

A business spends $10k on advertising.

Government Trade-Offs

The US Gov't spends $10m for extra security at airports.

Economic Decision-Making Grid Example

Part-Time Job vs. Play Basketball.

Benefits of Part-Time Job

Earn extra money and gain work experience.

Drawbacks of Part-Time Job

Diminished basketball skills and lack of extra spending money.

Benefits of Playing Basketball

Improve skills and improve opportunity to make the varsity team.

Drawbacks of Playing Basketball

Less chance to make the varsity team and no job to prepare for future employment opportunities.

Opportunity Cost of Playing Basketball

Lack of extra spending money.

Economic Decisions

Involves evaluating trade-offs and opportunity costs.

Consumer Choices

What product should I buy? How should I spend my time?

Producer Choices

What will we make? How will we make it? Where will we make it?

Importance of Opportunity Cost

Each choice comes with an opportunity cost that affects personal finance and economics.

Daily Choices Example

Picking what you ate for breakfast or what you wore to school.

Decision-Making Reflection

Think of a decision you made yesterday and what you had to give up.

Trade offs

The alternatives that must be given up when a choice is made.

Scarcity

A basic condition that exists when unlimited wants exceed limited productive resources.

Factors of Production

The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.

Production Possibilities Frontier

A curve that shows the maximum feasible amount of two goods that can be produced with available resources.

High Demand and Low Supply

A situation where the demand for a product exceeds its supply, leading to increased market value.

Scarcity Problem

The fundamental economic issue of having seemingly unlimited human wants in a world of limited resources.

Abundance

A condition where resources are plentiful and can satisfy all wants.

Desirable Scarcity

Something is scarce when it is both limited and desirable.

Examples of Scarcity

Lebron James, oil, time, rest, grass in the winter.

Permanent Scarcity Problems

Issues that cannot be solved due to the nature of limited resources.

Allocation of Scarce Resources

The process of distributing limited resources in a market economic system.

Market Economic System

An economic system where resources are allocated based on supply and demand.

Professional Athlete vs. Entry Level Receptionist

A professional athlete is scarcer than an entry level receptionist due to their unique skills.

Scarce Skills

Skills that are rare and in high demand, leading to higher pay.

Elmo Craze

The phenomenon during the 1996 holiday season where the Elmo toy became extremely popular.

Elmo Toy Production

Only 400,000 units were produced, while over 1,000,000 were in demand.

Elmo Resale Price

The Elmo toy was being resold for up to $2,500 by the end of 1996.

Scarcity in 2019-2020

Examples include the Playstation 5 and toilet paper shortages during the COVID pandemic.

Simulation of Scarcity

An activity designed to demonstrate how scarcity impacts all people.

Examples of Scarcity in Life

Time, sleep, and leisure are common examples of scarcity individuals experience.

Economics

The study of choices; how individuals and groups seek to satisfy their wants and needs in light of scarcity.

Land

Natural resources not created by human effort that are used to produce goods and services.

Labor

Time and effort devoted to producing goods and services.

Capital

Human-made objects used to create other goods and services.

Physical Capital

Human-made objects used to create other goods and services such as machines, phones, and computers.

Human Capital

Skills, abilities, and specialized talents of people.

Financial Capital

Money, used by businesses to invest in their business.

Entrepreneurs

Business owners who organize the factors of production to bring goods or services to the market.

Cashier

A worker who handles cash transactions at a business.

Teacher

An individual who educates students in a school setting.

Professional Athlete

An individual who competes in sports for a living.

$65,000 per year

An example of income for a teacher.

$21.1 Million per year

An example of income for a professional athlete.

$13.25 per hour

An example of income for a cashier.

Peppers

A natural resource used to produce Tabasco hot sauce.

Glass bottles and plastic

Materials needed to package Tabasco hot sauce.

Water or vinegar

Ingredients used to mix with peppers in Tabasco hot sauce production.

Elon Musk

An example of an entrepreneur.

Automobile for DoorDash

An example of physical capital.

iPads used by employees

An example of physical capital in a communications company.

Waiters and waitresses

An example of labor in a local pizza place.

Knowledge of fixing computers

An example of human capital for a computer technician.

Lettuce, tomatoes, deli meat, and bread

Examples of land resources for a sub shop.

Power plant for a local city

An example of physical capital.

Eggs, wheat, and cornstarch for a bakery

Examples of land resources for a bakery.

Grill for a Mexican restaurant

An example of physical capital.

Cameraman for a television company

An example of labor.