Unit 1 (2) THE ECONOMIC PROBLEM

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 1 THE ECONOMIC PROBLEM

1 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)

3 What is the difference between shortage and

EXERCISE 1

1 What is the economic problem? Why does it exist?

2 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 do 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?

5 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

C We can apply the concept of opportunity cost to time

D Supply refers to people’s needs for goods and services

the next best alternative

Demand

1 ……… is the social science that studies how people use scarce resources to satisfy/meet unlimited needs and wants

2 The basic economic problem is ……… which is the idea that human beings want more things than what is available to them

3 ……… such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply

4 There is limitation in resources, so people are unable to attain/ obtain everything they desire This forces humans to ……….

5 Since we have limited resources, we usually have to choose one option/ alternative and forgo the other This phenomenon is called

opportunity cost

EXERCISE 3

6 Scarcity, choice and opportunity cost are three basic/

fundamental ……… in economics

7.Once what to produce has been decided, the next

question that must be addressed is ……… 8.Every economy has to make decisions in regard to

what, how and ………

9.The function of the economy is to ……… scarce

resources among unlimited wants

10.Economists study the

production, , and consumption of goods and services

concepts

how to produce

for whom to produce

allocat e

distributio n

EXERCISE 4

› Talk to your partner/ class about your recent opportunity cost

EXERCISE 5

1 Do you agree that the scarcer a good is, the more we want it?

Why/Why not?

2 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.

3 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 6

Watch the video and use the information in the video

to answer the following questions.

1 Is economics all about making money?

2 What are the two causes of scarcity?

3 Why do we have to make a choice?

4 When is an opportunity cost involved?

5 What may be the opportunity cost of attending college instead

of getting a job?

6 Why do NBA players often choose not to attend college?

7 What is the choice that married women have to make?

Exercise 6

Watch the video and use the information in the video

to answer the following questions.

1 Is economics all about making money?

NO

2 What are the two causes of scarcity?

Unlimited wants and limited resources

3 Why do we have to make a choice?

We have to make a choice because we cannot satisfy all our wants due to scarcity.

4 When is an opportunity cost involved?

An opportunity cost is involved when you make a choice

Exercise 6

Watch the video and use the information in the video

to answer the following questions.

5 What may be the opportunity cost of attending college instead

of getting a job?

The job experience you sacrifice.

6 Why do NBA players often choose not to attend college?

Because the opportunity cost of attending college

instead of playing in the NBA is million dollars.

7 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 7

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 7

1 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.

2 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

3 My brother wants to attend volleyball training to be a better player instead of taking a summer vacation

The opportunity cost is the vacation.

4 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.

6 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.

8 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.