Scarcity and

Making Rational Decisions

 What do you Answer this question in at
know? least 4 sentences:
Can you define these terms?
•Scarcity
•Benefit What should you consider
•Cost
•Incentives
•Rational
when making a major life
•Allocate decision?
 By the end of Essential Questions
this lesson you •Why do people have to make decisions?
•How do you determine the use of productive resources
should know…. you own?
•What did our school give up when it chose to _____(fill in
Terms a local school decision students find
Content Terms interesting)____________________?
•Scarcity •How does making a budget demonstrate the concept of
•Opportunity cost scarcity?
•Incentives •Why should people weigh the advantages and
•Durable disadvantages of different alternatives when making
•Microeconomics choices?
•Macroeconomics •What does it mean to be “rational”?
•Standard of Living
•How do we determine that decision we make is “rational”?
•Productivity
•What methods can we use to help us make our choices
more rationally?
Academic Terms
•Rational
•How does self-interest influence human decision-making?
•Allocate
•Invest
 By the end of Georgia Performance Standard
this lesson you SSEF1 The student will explain why limited productive resources and unlimited wants
result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and

should know…. governments.

c. List a variety of strategies for allocating scarce resources.
d. Define opportunity cost as the next best alternative given up when individuals,
businesses, and governments confront scarcity by making choices.

Literacy Standards SSEF2 The student will give examples of how rational decision-making entails
RH.11-12.3 Cite thorough textual evidence comparing the marginal benefits and the marginal costs of an action.
to support analysis of what the text says b. Explain that rational decisions occur when the marginal benefits of an action equal or
explicitly as well as inferences drawn from exceed the marginal costs.
the text, including determining where the
text leaves matters uncertain. SSEF6 The student will explain how productivity, economic growth, and future
RH.11-12.7 Integrate and evaluate standards of living are influenced by investment in factories, machinery, new
multiple sources of information presented technology, and the health, education, and training of people.
in different media or formats as well as in b. Give illustrations of investment in equipment and technology and explain their
words in order to address a question or relationship to economic growth.
solve a problem. c. Give examples of how investment in education can lead to a higher standard of living.
WH.11-12.1 Write arguments to support
claims in an analysis of substantive topics SSEPF1 The student will apply rational decision making to personal spending and
or text using valid reasoning and relevant saving choices.
and sufficient evidence. a. Explain that people respond to positive and negative incentives in predictable ways.
WH.11-12.3 Write narratives to develop b. Use a rational decision making model to select one option over another.
real or imagined experiences or events
using effective technique, well-chosen
details, and well-structured event
sequences.
 What is a Rational
Decision?
Rational-
A rational decision is not just a decision made by
consistent with evaluating all choices, it is a decision that takes into
logic; sensible account the reason for making the decision.
Decisions should be made taking individual and national
goals into account because of scarcity.
Opportunity
Cost- the next – Scarcity is the concept that people and countries
best have unlimited wants but limited resources.
alternative
This forces people to make choices and when
you make a choice, there is always a cost.
Whether it is a country, a business or an individual, every
time a choice is made there will be an opportunity cost.
This is why making a ration decision is so important.
 Microeconomics- the

Micro Example
study of decision
making and behavior
of individuals and
firms

Kristina just won $1000 check from an essay contest. It is almost summer and
the first thing that came to her mind was to take a vacation with the money,
but she does have other options. She is going to college in the Fall and her car
needs breaks and new tires.
How should Kristina make a rational decision with her resources?
Things to consider:
•Goals
•Current situation
•Important Criteria for the results you desire
•The cost and benefit of each decision
 Micro Example cont..
Kristina just won $1000 check from
an essay contest. It is almost
1. What are Kristina’s wants? What
summer and the first thing that
are her limited resources?
came to her mind was to take a
vacation with the money, but she 2. If you were in Kristina situation,
does have other options. She is what would be your top 4
going to college in the fall and her options for spending the
car needs breaks and new tires. money?
Answer the following Questions: 3. How would Kristina explain
choosing to go on vacation with
the money?
4. How would Kristina explain
spending the money to fix up
her car?
 Decision Making Grid
One tool that can be used to evaluate decisions using important criteria is
a decision making grid.
1.List your top 4 choices
2.Determine the criteria important to your current goals and/or situation
(list criteria in order of importance)
3.Complete the chart by checking the criteria box if the answer is yes
Will help make Durable No additional Multiple Uses Totals
money Good/Service expense above
$1000

Vacation
Car Repair
Computer
for college
Prom

Durable- good that will last at least 3 years

 Decision Making Grid
Based on the results of using the decision making grid, what should
Kristina choose? What is her opportunity cost?

Will help make Durable No additional Multiple Uses Totals

money Good/Service expense above
$1000

Vacation 0

Car Repair X X X 3

Computer X X X 3
for college
Prom X 1

Why should she choose the car over the computer if

they scored the same?
Can you think of other tools or
methods you can use to make
rational decisions?
 More Methods
Another way to make a rational decision is to do a cost benefit analysis.
Imagine in Kristina’s case that she couldn’t decided to buy the computer or
the car repair. That both of them were equally desirable. How should she
choose between the two?
If both options are equally beneficial but the car repair was $500 and the
computer was $650, then Kristina should pay for the car repairs because she
gets the maximum benefit for the lowest cost.

Assessment - Complete one of the following:

1.Write an example of when you have used cost benefit analysis.
2.Use the decision making grid to analyze a choice you will have to make
soon.
 Macroeconomics-
the study of the

Macro Example economy as a whole

and decision making
by governments and
large units

Every country faces the problem of scarcity. Countries have limited resources but
their people have unlimited wants so a choice must be made. Consider the following
example:

In the 1950’s the US government(and the UN) were asked by South Korea to send
troops to help them fight Communism. The country was in the midst of a Cold War,
and ideological battle between Democracy and Communism and our policy at the time
was to try to contain Communism as we felt it was a very dangerous threat. There
were also domestic issues the country was facing. The post war baby boom made it
necessary to provide education to an increased population of youth and since the Cold
War was fought through intelligence, there was a real constant threat of spies trying
to steal national secrets and technology.
EXPLAIN YOUR DECISION

If you were the President of the United States, what criteria and information do you need to consider in order to
make a rational decision?
How will you justify your decision to the American people?
Write a speech:
As if you were the President of the United States. Explain to the people how you have
decided to use the country’s resources, what it will cost them and why it is worth it.
 Answer these Questions?
•Why do people have to make decisions?
•How do you determine the use of productive resources you own?
•What did our school give up when it chose to _____(fill in a local school
decision students find interesting)____________________?
•How does making a budget demonstrate the concept of scarcity?
So far •Why should people weigh the advantages and disadvantages of different

can alternatives when making choices?

•What does it mean to be “rational”?
you… •How do we determine that decision we make is “rational”?
•What methods can we use to help us make our choices more rationally?

Define these
Terms? Can you…
Scarcity •List a variety of strategies for allocating scarce resources.
Opportunity cost
•Define opportunity cost as the next best alternative given up when individuals,
Durable
businesses, and governments confront scarcity by making choices.
Microeconomics
•Explain that rational decisions occur when the marginal benefits of an action equal or
Macroeconomics
exceed the marginal costs.
•Use a rational decision making model to select one option over another.
 SSEF6 The student will explain how productivity, economic
We still growth, and future standards of living are influenced by
investment in factories, machinery, new technology, and the
need to … health, education, and training of people.
b. Give illustrations of investment in equipment and technology
and explain their relationship to economic growth.
Define these Terms c. Give examples of how investment in education can lead to a
•Allocate higher standard of living.

•Incentives
SSEPF1 The student will apply rational decision making to
•Invest personal spending and saving choices.
•Standard of living a. Explain that people respond to positive and negative incentives
•Productivity in predictable ways.
b. Use a rational decision making model to select one option over
another.
 Investment is Key
Invest- to
devote For both individuals and governments the key to growth is
resources with investment. Goals should always be involved in the equation
the expectation
of profit or
when making decisions. Allocating resources to education,
material result technology and equipment can lead to increased growth in the
future.
Allocate-
distribute for a •For the individual and the business this can mean a higher
specific purpose income or more profit.
•For governments this can mean a higher standard of living for
Standard of
living- quality of the population.
life based on the
level of wealth,
happiness, Let’s research
comfort, material
goods and
necessities
available
 Individual Investment

Based on this data published in March 2014 from

the US Bureau of Labor Statistics
1. What are the benefits of investing time and money in your own
education?
2. What are the costs of investing your resources in a different alternative?
 Individual Investment
HS Master’s
Making rational decisions with Income $2,672 $5,304
money involves creating a budget.
Transportation
Complete the monthly budget sheet Car/Bus
on the right using the data from the Insurance
Repairs
previous chart for both a high school Gas
graduate and a person with a Food
Master’s Degree. Groceries
Eating Out

Living
$2,672 per month for HS Grad Rent/Mortgage
Cable
$5,304 per month for Masters Phone
Utilities
Clothing
Fun

Accounts
Credit Cards
Loans

Savings
 Individual Investment
Answer the following question in
groups:
What is the difference in your
standard of living with a HS diploma
versus a Master’s Degree?
(think more than just numbers)

What incentive do you

personally have
to continue your education
after High School?

Incentive- something that

incites action or effort; can
be positive-reward or
negative-punishment
 Government Investment
• The most important factor in economic Click this link to see how
growth is using resources efficiently and
increasing productivity. countries compare in
• Governments invest in education, renewable energy
research and development in order to
increase productivity which will lead to investment.
http://www.theecologist.org/News/news_analysis/829664/revealed_how
efficient workers, more productive _your_country_compares_on_renewable_investment.html

resources, more producers, more jobs

and more money flowing through the
market.
• This increases the standard of living for
the whole country.
One example of an area of investment for
countries around the world is
renewable energy.
How can this investment increase a Productivity- the
countries productivity? amount of output
produced with a given
amount of resources
 Government Investment cont…
One example of government Assessment
investment is in renewable, On a sheet of paper create a poster that:
•Illustrates the benefit of investing in this
alternative and solar energy.
type of energy research
•Speaks to your audience, the American
people because it is their tax dollars that
fund the research
•Make sure it conveys that the benefit of
this investment, outweighs the cost
 Can Answer these Questions?
•Why do people have to make decisions?

you… •How do you determine the use of productive resources you own?
•What did our school give up when it chose to _____(fill in a local school
decision students find interesting)____________________?
•How does making a budget demonstrate the concept of scarcity?
•Why should people weigh the advantages and disadvantages of different
Define These alternatives when making choices?
Terms? •What does it mean to be “rational”?
•How do we determine that decision we make is “rational”?
Content Terms •What methods can we use to help us make our choices more rationally?
Scarcity •How does self-interest influence human decision-making?
Opportunity cost
Incentives
Durable
Microeconomics
Complete these Standards?
•Explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and
Macroeconomics
tradeoffs for individuals, businesses, and governments.
Standard of Living
•List a variety of strategies for allocating scarce resources.
Productivity
•Define opportunity cost as the next best alternative given up when individuals, businesses, and governments
confront scarcity by making choices.
Academic •Give examples of how rational decision-making entails comparing the marginal benefits and the marginal
Terms costs of an action.
Rational •Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal
Allocate costs.
Invest •Explain how productivity, economic growth, and future standards of living are influenced by investment in
factories, machinery, new technology, and the health, education, and training of people.
•Give illustrations of investment in equipment and technology and explain their relationship to economic
Sample growth.
•Give examples of how investment in education can lead to a higher standard of living.
Questions •Apply rational decision making to personal spending and saving choices.
•Explain that people respond to positive and negative incentives in predictable ways.
•Use a rational decision making model to select one option over another.
 Try These Questions from the
Released EOCT
1. What basic economic problem do both 3. An individual decides to pay $8 to see a
higher-income nations and lower-income movie instead of buying an $8 meal.
nations have in common? What is the opportunity cost of the
A. too many unskilled laborers movie?
B. lack of capital goods A. the satisfaction missed by not eating
the meal
C. too much government
B. the $8 paid to see the movie
D. scarcity of resources
C. the time spent watching the movie
2. Which of the following is an example of a
microeconomic decision? D. the satisfaction received by going to
the movie
A. whether to increase or decrease the
money supply 4. Which of the following is MOST
important for economic growth?
B. whether to increase or decrease
taxes A. efficient use of resources
C. how to reduce the unemployment B. ample tax revenues
rate C. availability of resources
D. how many hours an employee should D. a large labor force
work each week
 Answers
1. D
2. D
3. A
4. A
 Resources
• “Employment Projections” US Department of Labor Bureau of Labor Statistics
http://www.bls.gov/emp/ep_chart_001.htm
• USASpending.gov
http://www.usaspending.gov/
• “2010 Global Clean Energy Snapshot” The Ecologist
http://www.theecologist.org/News/news_analysis/829664/revealed_how_your_country_compares_o
n_renewable_investment.html

• Georgia Department of Education’s Economics/Business/Free Enterprise EOC Assessment Guide

– http://www.gadoe.org/Curriculum-Instruction-and-Assessment/Assessment/Documents/
Milestones/Assessment%20Guides/GM%20Economics%20EOC%20Assessment%20Guide
%20081715.pdf
• Economics GPS Frameworks: Unit 2-”The Choice is Yours”
– https://www.georgiastandards.org/Frameworks/GSO%20Frameworks/Economics%20Unit
%202.pdf
• Georgia Department of Education Released EOCT’s and answer keys
– http://www.doe.k12.ga.us/Curriculum-Instruction-and-Assessment/Assessment/Pages/EOCT-
Released-Tests.aspx