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.

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?

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.

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.

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.

'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.

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?

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?

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.

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.

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 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 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.

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.