SECTION ONE: SCARCITY, CHOICE and OPPORTUNITY COST.
  • Understand the conflict of limited means relative to wants and see the relationship between limited means and the need to make decisions.
  • Explain the concept of choice.
  • Recognise that different groups bring different values to the decision making process.
Economics is the study of ho individuals and groups choose to use scarce resources to satisfy unlimited wants.
 

Scarcity
Scarcity is a key problem in economics for both producers and consumers.
 

Consumers and scarcity
Consumer wants, including needs are unlimited. Consumers tend to want as much as they can get.

Needs are things we must have to survive. They include food, shelter, warmth.

Wants are things we desire, we would like to have them but may not need them to survive.

 
Consumer means i.e. incomes, skills and time are limited.
 
The problem is unlimited wants but limited means.
 
Unlimited wants
Needs e.g. food, clothing, shelter, love.
Plus
Other wants
These are unlimited e.g. cars, holidays, boats, furniture - all goods and services are included.
 
Limited Means - these are our ability to get / obtain the goods and services we would like to have (our unlimited wants).
The main ones are:

Time - the time we have to fulfill our needs and wants.

Income - the money we have available to fulfill our needs and wants.

Skills - our personal attributes and abilities that we are born with. Education and training help us to enhance our skills and fulfill our potential.

But there may also be other ones such as our family (whanau) or friends.

 
How does scarcity apply to consumers?

   
 
What are wants and needs?

   
 
What is the difference between an economic and a free good?

   
 

Choice
Because wants are unlimited and means for getting them limited, then choices must be made.
Example:
Amy has just receive a $500 from her parents. She could spend it on a new bike or a new stereo, but not both as she doesn't have enough money. Amy has to make a choice between the bike and the stereo as she doesn't have enough money (limited means) to buy both.
 
Why must consumers make choices?

   
 

Opportunity cost
This is the name for the next best thing you give up in order to have the good or service you choose. It is the next best alternative forgone.
Example:
Amy chooses the new bike but goes without stereo. The opportunity cost is the new stereo.
 
Sean would like to go on a holiday to Fiji, but he also wants to buy a new computer. His parents want him to save the money for going to university. Sean would really like a new computer but decides to listen to his parents. What is the opportunity cost?

   
 
What is Opportunity Cost?

   
 

Values in choice and decisions
Choice
Choice depends on personal preferences. Different people will choose differently.
Why?
Our decisions are influenced by:
  • Upbringing -how you are taught to behave.
  • Culture - an Asian student may choose differently from a New Zealander.
  • Religion
  • Age and whether male or female.
  • Influence of friends.
  • TV
  • Your income - very important.
 
Values - these are things we hold to be important.
All these influences give people values e.g.
Honesty; thought for others; sense of justice and fair play; Thrifty (not wasting money); hardworking. Values are things people hold to be important.
These values affect                     decisions and choices
 
Example:
 
What are values?

   
 
Example:
Grace and Scott are deciding what they will have for dinner Grace, who is a vegetarian wants to eat at a local restaurant which services healthy meals and vegetarian meals. Scott prefers cheaper meals such as fast food and hamburgers and so would like to eat at Mo's Burger.
 
What influences could affect how they decide?

   
 
Name two values that would affect their decision.