Be Business 3 1 SCARCITY AND CHOICE SCARCITY

Be Business 3. 1 SCARCITY AND CHOICE

SCARCITY AND CHOICE Learning Intentions At the end of this unit I will: • Know and understand about limited economic resources • Know and understand scarcity • Be able to discuss choices we have to make • Value opportunity cost and possible consequences 2 3. 1

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SCARCITY AND CHOICE BEFORE WE BEGIN Do this exercise individually or in pairs. Tick whether you agree or disagree with the statements. Revisit it after the unit to see if you have changed your mind about any of them. Before I agree After I disagree Statement I agree I disagree Irrational behaviour is the same as being savvy #04 AFEF Income limits our needs and wants Opportunity cost is the value of the money we pay for something Resources may be limited Scarcity requires us to make choices 4 3. 1

SCARCITY AND CHOICE Websites Wonderful Worthwhile Websites www. businesseducation. ie www. tutor 2 u. net/economics www. finfacts. ie www. cso. ie www. centralbank. ie www. revenue. ie 5 3. 1

SCARCITY AND CHOICE Introduction Economics is the study of how individuals, households, for profit -organisations, not-for-profit organisations and our government choose how to use finite resources to try to satisfy their needs and wants. A need is essential or very important rather than just desirable, e. g. food and water. A want is something that you wish for, e. g. an i. Pad. 6 3. 1

SCARCITY AND CHOICE Introduction • Wants are continuously changing • People’s wants generally exceed their limited resources • Some resources are non-renewable • Non-renewable resources are also called finite resources • The fundamental principles of economics are about human behaviour 7 3. 1

SCARCITY AND CHOICE Rational Behaviour Economic principles assume rational behaviour, but humans often act irrationally. Rational behaviour is a decision-making process people use to make choices that result in them achieving satisfaction. We assume that people would prefer to: • Be better off rather than worse off • Have more of rather than less of For example, a person is more likely to buy an item at a lower price than a higher one, or to buy items on sale if they believe it to be better value. 8 3. 1

SCARCITY AND CHOICE Irrational Behaviour Irrational behaviour is when people are lazy making choices, overly influenced by other people, or don’t use reason when making a decision. For example, if the price of ice cream dropped: • Some people would rush to buy a lot of it to store it • Some people would assume it is inferior quality and not buy it 9 3. 1

SCARCITY AND CHOICE ‘ 3 Ts’ = Turn, Think, Talk • Have you ever acted irrationally when you bought a product? Explain your decision-making process. • Economics is a social science – a science that studies aspects of human behaviour. • We can’t have everything we want. Why? Because we have limited resources. 10 3. 1

SCARCITY AND CHOICE Scarcity Wants unlimited Creates In economics, scarcity is when we want more than we have. scarcity Resources limited Choices 11 3. 1

SCARCITY AND CHOICE Scarcity Economics studies how people use scarce resources in order to satisfy unlimited needs and wants. Scarcity can force us to: • Make hard choices • Go without a product or service • Pay extra for a product or service • Look elsewhere for the things we want 12 3. 1

SCARCITY AND CHOICE Making Choices Scarcity = needs and wants > resources For individual, organisations andthrough: not. Individuals, organisations, and governments have to Businesses must make choices regarding: The the government raises income to(for-profit meet needs for-profit) and government, managing limited make choices. • Taxation The type goods challenge. and services to produce resources is a of constant They • all. Borrowing have limitedthat resources. The quantity should be made The price to charge This • income is used to pay for vital services. 13 3. 1

SCARCITY AND CHOICE Time to think Can you think of other choices that a business might make, perhaps to do with finance or its employees? With a limited budget and finances, a business will try to produce as cheaply as possible, ensuring it covers all its costs as well as making a profit. 14 3. 1

SCARCITY AND CHOICE Making Choices Consider the implications of each option when making a choice. • A family/household – may choose to cut luxuries • A business – may have to cut back on expenses • A voluntary organisation – may have to limit its services • A government – may have to cut spending in certain areas When a problem arises, we have to make choices. 15 3. 1

SCARCITY AND CHOICE Time to think Have you ever discovered that something you want isn’t available? Think about this in relation to the concept of scarcity. What choice did you make? 16 3. 1

SCARCITY AND CHOICE WORKING WITH OTHERS Working in pairs or small groups, predict the possible consequences of the choices detailed on page 404. Remember that all choices have consequences. 1. Be Me 2. Be a Business #04 AFEF 3. Be a Not-For-Profit Organisation 4. Be the Government Page 404 17 3. 1

SCARCITY AND CHOICE Opportunity Cost Opportunity cost is the benefit or value of something that must be given up to acquire or achieve something else. • Every choice has an associated opportunity cost • There also environmental costs • There are limited land natural resources • Our government has to make choices to benefit society as a whole Scarcity creates a need for decisions and compromises to be made. 18 3. 1

SCARCITY AND CHOICE Example 1: Opportunity Cost Joe has € 50 to spend. He is trying to decide whether to buy a soccer jersey or to buy some computer games. The Individual - Joe Financial cost € 50 Opportunity cost Cost of the next best alternative (computer games) 19 3. 1

SCARCITY AND CHOICE Time to think Can you think of an example of an opportunity cost in your own experience? What was the product or service? What was the financial cost? What was the cost of the next best alternative? 20 3. 1

SCARCITY AND CHOICE Example 2: Opportunity Cost If Sharp Shoes Ltd chooses to spend € 200, 000 on updating its technology, the opportunity cost may be to forgo the introduction of employee bonuses. The Business – Sharp Shoes Ltd Financial cost € 200, 000 Opportunity cost Cost of the next best alternative (bonuses for employees) 21 3. 1

SCARCITY AND CHOICE Example 3: Opportunity Cost If the government chooses to spend € 60 million on hospitals it may have to forgo the opportunity of spending money on education, for example i. Pads for all Business Studies classrooms. The Government Financial cost € 60 million Opportunity cost Cost of the next best alternative (i. Pads for Business Studies classrooms) 22 3. 1

SCARCITY AND CHOICE Be Numerate Read the scenarios on page 406. • Be the Individual: What advice might you give Katie? Why? • Be the Business: What choice might you have made and why? • Be the Government: What choice would you make? Why? 23 3. 1

SCARCITY AND CHOICE N I G N I K C CHE 1. Write an explanation of opportunity cost in your own words. 2. Create our own examples of opportunity cost for an individual, a family, a business and our government. What might be the effect of your examples on our planet? 3. Look at the table on page 407. Which are needs and which are wants? 4. Copy the grid on page 407 and match each term to the correct statement. 5. Read Darcy’s scenario on page 407 and answer the questions a-d. 24 3. 1

SCARCITY AND CHOICE WORKING WITH OTHERS The oil crisis in the 1970 s was when there was an oil shortage. Oil was scarce, people wanted to buy oil, but only a limited amount was available. This is a good example of scarcity: wants are more than what is available. • What choices might you make if there was an oil crisis tomorrow? • Can you think of any other #04 AFEF crisis scenario? Page 407 25 3. 1

SCARCITY AND CHOICE CASE STUDY AN EXTREME EXAMPLE OF SCARCITY The 1845 Famine in Ireland was only 160 years ago. A famine is an extreme example of scarcity. Read the case study on page 408. 26 3. 1

SCARCITY AND CHOICE CASE STUDY ONE DECISION: MANY RESULTS/CHOICES Read the case study on page 408. 1. BE THE GOVERNMENT 2. BE SOCIETY 3. BE INSURANCE COMPANIES 4. BE THE INDIVIDUAL 27 3. 1

SCARCITY AND CHOICE Quick Quiz What is scarcity? needs and wants = resources needs and wants < resources needs and wants > resources 28 3. 1

SCARCITY AND CHOICE Quick Quiz What is scarcity? needs and wants = resources needs and wants < resources needs and wants > resources 29 3. 1

SCARCITY AND CHOICE Quick Quiz What is scarcity? needs and wants = resources needs and wants < resources needs and wants > resources 30 3. 1

SCARCITY AND CHOICE Quick Quiz What is scarcity? needs and wants = resources needs and wants < resources needs and wants > resources 31 3. 1

SCARCITY AND CHOICE Quick Quiz: Review Scarcity = needs and wants > resources 32 3. 1

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SCARCITY AND CHOICE Key Words • Economics • Financial costs • Limited resources • Non-renewable resource • Need • Opportunity cost • Rational behaviour • Scarcity • Want 34 3. 1