Exercises: The economic problem: scarcity and choice

Explain what scarcity is and why it forces us to choose. Illustrate this using your weekly pocket money: two things you would like to buy, which one you give up if you choose the other, and what that means.

Define opportunity cost and calculate it in this case: on Saturday you can go to the cinema ($8\ \text{€}$ per ticket) or to your cousin's birthday party, but not both. If you choose the cinema, what is your opportunity cost? Explain why it is not just the price of the ticket.

The school cooperative divides its small workshop between making bracelets and making keyrings for the market. The diagram shows its production possibility frontier with three marked combinations: A, B, and C.

1. a) Explain what each point — A, B, and C — indicates about how the workshop is using its resources.
2. b) At point A, $40$ keyrings and $30$ bracelets are produced per day. What would the cooperative have to sacrifice to make more keyrings? What is this sacrifice called?

Classify these resources as scarce or not scarce for you and justify your answer: (a) the air you breathe in the playground; (b) tickets to your favourite band's concert; (c) your time on Sunday afternoon; (d) bottled water in the desert. What turns a resource into a scarce one?

Your school can only choose one project this year: fixing the playground or refurbishing the library. Explain what the opportunity cost of choosing the playground is, who should take part in that decision, and what questions you would ask before voting.

Explain what a need is and what a want is, with two examples of each from your own life. Can the same object (for example, a mobile phone) be a need for one person and a want for another? Give reasons for your answer.

Match each decision with its clearest opportunity cost: (a) studying on Saturday morning; (b) buying yourself a pair of $70\ \text{€}$ trainers; (c) staying over at your cousin's house. Options: (1) not being able to go to your friend's birthday; (2) not playing the match with your team; (3) giving up the headphones you also wanted. Explain in one of the cases why the cost is not measured only in euros.

The school cooperative has a single 3D printer and three teams want to use it on Thursday. Propose two different ways of sharing out that scarce resource (taking turns, a symbolic auction with points, first come first served) and explain what each one encourages and what problem it has.

Each day, the cooperative can produce these combinations of bracelets and keyrings: $(0, 60)$, $(20, 50)$, $(35, 35)$, $(45, 15)$, and $(50, 0)$, where the first number is bracelets and the second keyrings.

1. a) Calculate the opportunity cost, in keyrings, of moving from $20$ to $35$ bracelets.
2. b) Calculate the opportunity cost of moving from $45$ to $50$ bracelets and compare both stages: does increasing bracelet production become increasingly costly? Why do you think this happens?

You are considering studying for 'one more hour' before the maths exam. That hour would come out of your basketball practice. Explain what the marginal benefit and marginal cost of that extra hour compare (thinking 'at the margin'), and argue at what point studying for another extra hour would no longer be worth it.

The school canteen used to give away free plastic bags and used $500$ a week; since it started charging $0,10\ \text{€}$ per bag, it uses $50$. Explain what an incentive is and how it worked in this case, and propose two incentives (one reward-based and one price-based) to get students to recycle more in the schoolyard.

The school market team has $10$ hours to prepare two products: each batch of crêpes takes $1$ hour and each batch of lemonade, $2$ hours.

1. a) Write four possible combinations of batches that use up the $10$ hours and calculate the opportunity cost, in batches of lemonade, of making one more batch of crêpes.
2. b) If each batch of crêpes yields $8\ \text{€}$ of profit and each batch of lemonade yields $14\ \text{€}$, argue which combination you would choose and what other information you would need to be sure.

Your class is debating how to split the term's $30$ volunteering hours between the soup kitchen and the river clean-up. Some say 'half and half, that's only fair'; others say 'everything where it is needed most'.

1. a) Explain what economic criterion you would use to decide (where each additional hour produces the most benefit) and why an even split ($50\ \%$ each way) may waste impact.
2. b) Propose a concrete split and defend it with marginal reasoning: at what point does one more hour at the river contribute less than that same hour at the soup kitchen.

The council wants residents to use their cars less and is studying two incentives: charging $2\ \text{€}$ to drive into the centre (a price) or giving a free bus pass to anyone who leaves the car for a month (a reward). Explain how each incentive acts on a family's decision, who each one affects most, and what unwanted effects each measure could have.

'Time is the scarcest resource you have, because no more of it can be made.' Analyse your typical Saturday with that idea: list what you do, estimate the hours for each activity and calculate the opportunity cost of spending two hours on social media. Propose one realistic change that would improve your Saturday without giving up rest.

A student cooperative produces badges and mugs. With its resources, these are the possible daily combinations: $(0, 24)$, $(10, 20)$, $(18, 14)$, $(24, 6)$ and $(28, 0)$, where the first number is badges and the second is mugs.

1. a) Calculate the opportunity cost in mugs of going from $10$ to $18$ badges and of going from $24$ to $28$.
2. b) Explain why the cost of producing badges rises as more are produced and what shape the drawn production possibilities frontier would have.

For the end-of-year trip, your class has $1.000\ \text{€}$ and three options: (a) a day at the theme park ($1.000\ \text{€}$), (b) two days of outdoor adventure with hostel stay ($900\ \text{€}$), or (c) a day out together at the beach ($300\ \text{€}$) and donating the remainder to the local soup kitchen.

1. a) Calculate the opportunity cost of each option in euros and in experiences.
2. b) Choose one option and defend it, arguing what values guide your decision beyond money.

'This app is free.' A social network does not charge for its use, but it displays adverts and tracks everything you look at. Analyse what you are really paying for this 'free service', who benefits, and how this relates to the idea that making choices always incurs a cost, even when there is no price tag.

In a coastal town, parking next to the beach used to be free, and in August it was impossible to find a space. The local council set a price of $2\ \text{€}$ per hour, and now residents are debating: some say that 'the beach belongs to everyone' and others that 'at least this way there is turnover and spaces open up'.

1. a) Explain the underlying economic problem when a scarce resource has a zero price tag.
2. b) Analyse what incentives the new measure creates and propose an alternative way to allocate the resource without using prices, weighing up its pros and cons.

The school receives a donation of $2.400\ \text{€}$ and there are three proposals on the table: equipping the science laboratory ($2.400\ \text{€}$), buying sports equipment for all year groups ($1.200\ \text{€}$) and creating a fund for school-material grants ($800\ \text{€}$). Projects can only be funded until the donation runs out.

1. a) Set out the possible combinations and calculate the opportunity cost of each one in terms of what is left out.
2. b) Choose one combination and defend it by explaining which criterion you have prioritised (fairness, number of beneficiaries, duration of the benefit) and what you lose with your choice.

In the city, a new cycle lane has removed $80$ parking spaces from the centre. Shopkeepers protest: 'no cars, no customers.' Cyclists reply: 'we shop too.'

1. a) Identify the scarce resource in conflict and explain the opportunity cost of devoting it to cars versus devoting it to bicycles.
2. b) Design a way of gathering data that would settle the argument (what you would measure over a month and how) and propose a reasoned compromise solution.

'The planet's resources are scarce, so eternal economic growth is impossible.' Against that, someone argues: 'human creativity always finds a way to do more with less.'

1. a) Summarise the best argument of each position applied to a concrete example (water, energy or materials).
2. b) Take a reasoned stance and explain what role the circular economy can play in reconciling the two ideas.

Your team has $6$ weeks to prepare the fair and you, personally, can only dedicate $8$ hours a week among studies, sport and the project. Your teammates are asking you to coordinate the publicity as well.

1. a) Make your time budget: split your $8$ hours among the project tasks and calculate what you stop doing if you accept coordinating the publicity ($3$ more hours).
2. b) Write your reply to the team: what you accept, what you don't, what you propose for sharing out the publicity, and why saying 'no' is sometimes a sensible economic decision.

A residents' association must decide what to do with the empty ground-floor premises: (a) renting it to a franchise for $600\ \text{€}$ a month; (b) lending it free of charge to a local youth association; (c) turning it into storage units that would bring in $200\ \text{€}$ a month.

1. a) Calculate the opportunity cost in euros of options (b) and (c) relative to (a) and explain why money is not the only benefit at stake.
2. b) Defend one option at the residents' meeting: what arguments you would use, how you would value the 'non-monetary' benefit of option (b), and how you would try to measure it (uses, people, community life).