Unit 1 THE ECONOMIC PROBLEM UNIT 1 THE ECONOMIC PROBLEM PRE READING 1 What’s the difference between need and want? Needs are the basic necessities for a person to survive —food, clothing and shelter W.
UNIT THE ECONOMIC PROBLEM PRE-READING What’s the difference between need and want? - Needs are the basic necessities for a person to survive —food, clothing and shelter - Wants are something you wish to have Wants are useful, but not necessary for survival 2 Are people’s wants limited or unlimited? - unlimited/ not satisfied SCARCITY (Unlimited wants and limited resources) What is the difference between shortage and scarcity? Shortage - Temporary condition - Demand > Supply Scarcity - Permanent condition - There are limited (Caused by increase resources to meet in demand or unlimited wants and decrease in supply) needs ECONOMIC PROBLEM • Economic problem • Limited resources • Choice and opportunity cost • Samuelson’s three questions EXERCISE 1 What is the economic problem? Why does it exist? How are resources limited? Resources are limited in two essential ways: Limited in physical quantity, as in the case of land, which has a finite quantity Limited in use, as in the case of labour and machinery, which can only be used for one purpose at any one time 3 Why all economic decisions involve making choices? - Because resources are limited 4 What is the opportunity cost? - The opportunity cost is the loss of the next best option/ alternative which represents the real sacrifice when making an economic choice 5 What questions must be answered for an economy to work well? Which of the following statements is correct? A Only poor people have the problem of scarcity B Opportunity cost is the value of all the alternatives that have not been chosen the next best alternative C We can apply the concept of opportunity cost to time D Supply refers to people’s needs for goods and services Demand EXERCISE Find the synonyms of the following words in the reading passage Unlimited Finite Basic Endless Limited Fundamental Choice Try Recognize Satisfy Option, alternative Endeavour Appreciate Meet Allocation Distribution EXERCISE …………………………… is the social science that studies how people Economics use scarce resources to satisfy/meet unlimited needs and wants scarcity The basic economic problem is …………………………… which is the idea that human beings want more things than what is available to them Resources …………………………… such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply There is limitation in resources, so people are unable to attain/ obtain everything they desire This forces humans tomake …………………………… choices Since we have limited resources, we usually have to choose one option/ alternative and forgo the other This phenomenon is called opportunity cost ………………………… 6.Scarcity, choice and opportunity cost are three basic/ fundamental concepts …………………………… in economics 7.Once what to produce has been decided, the next question that must be addressed is …………………………… how to produce 8.Every economy has to make decisions in regard to what, for how and …………………………… whom to produce 9.The function of the economy is to …………… scarce allocat resources among unlimited wants.e 10.Economists study the distributio production, ,nand consumption of goods and services EXERCISE › Talk to your partner/ class about your recent opportunity cost EXERCISE Do you agree that the scarcer a good is, the more we want it? Why/Why not? When is a good not considered scarce? - A good is not considered scarce if the unlimited wants and needs of that good can be met by resources Is there anything that you can use it free (something that you have infinite access to and you would never expect to run out)? - It is air Air is not scarce It is a good that everyone has unlimited access to, and no one has to pay to consume it EXERCISE Watch the video and use the information in the video to answer the following questions Is economics all about making money? What are the two causes of scarcity? Why we have to make a choice? When is an opportunity cost involved? What may be the opportunity cost of attending college instead of getting a job? Why NBA players often choose not to attend college? What is the choice that married women have to make? Exercise Watch the video and use the information in the video to answer the following questions Is economics all about making money? NO What are the two causes of scarcity? Unlimited wants and limited resources Why we have to make a choice? We have to make a choice because we cannot satisfy all our wants due to scarcity When is an opportunity cost involved? An opportunity cost is involved when you make a choice Exercise Watch the video and use the information in the video to answer the following questions What may be the opportunity cost of attending college instead of getting a job? The job experience you sacrifice Why NBA players often choose not to attend college? Because the opportunity cost of attending college instead of playing in the NBA is million dollars What is the choice that married women have to make? Married women have to make a choice between having children and maintaining a career Exercise Identify the opportunity cost in each of the following situations For example: You only have two hours of free time You could either go to a movie or visit the bookstore If you choose to spend your time at the movie, the opportunity cost of this decision is the time you could have spent enjoying the bookstore EXERCISE Susan bought a movie ticket, but then she decided to give up going to see the movie to study for her exam in order to get on good grade The opportunity cost was the cost of the movie and the enjoyment of seeing it At the ice-cream parlor, you considered choosing between chocolate and coconut and you chose coconut ice-cream The opportunity cost was the enjoyment of the chocolate ice-cream My brother wants to attend volleyball training to be a better player instead of taking a summer vacation The opportunity cost is the vacation Roger gets a good pay but he has decided to quit working next month to further his study The opportunity cost of this decision is the lost salary 5 As an attorney, Mr Green makes $500 an hour His house needs painting If he hires a professional painter, he will have to pay the painter $1,200 However, he is considering painting his house himself although will take five hours His opportunity cost of doing it himself is $1,300 We are using farmland to grow corn, but we want to use part of the farmland to raise cattle The opportunity cost is the amount by which the production of corn decreases 7 You spend $8 on lunch every day at work although you may know perfectly well that bringing a lunch from home would cost only $4 a day The opportunity cost of buying lunch at the restaurant is $4 each day Mr Cameroon owns 200 acres of farmland He can either farm the land or rent it to a neighbor The cash rental rate is $120 per acre, but he wants to farm the land The opportunity cost of farming the land and not renting it to the neighbor is $24,000 ($120 X 200 acres) So, unless Mr Cameroon can generate net returns of more than $24,000 from farming the land, he is financially better off renting the land to the neighbor ... decrease in supply) needs ECONOMIC PROBLEM • Economic problem • Limited resources • Choice and opportunity cost • Samuelson’s three questions EXERCISE 1 What is the economic problem? Why does it exist?... are limited 4 What is the opportunity cost? - The opportunity cost is the loss of the next best option/ alternative which represents the real sacrifice when making an economic choice 5 What... well? Which of the following statements is correct? A Only poor people have the problem of scarcity B Opportunity cost is the value of all the alternatives that have not been chosen the next best