Unit 1.1: Scarcity and opportunity cost
Introduction
This page contains notes and lesson activities to cover unit 1.1, the concepts of wants, needs, scarcity and opportunity cost plus the importance of specialisation.
Teacher only boxTeacher notes
Lesson time: 60 minutes
Lesson objectives:
To develop an understanding of the concept of scarcity and develop an understanding of the relationship between scarcity and opportunity cost. These concepts are normally associated with the subject of economics but they are also part of unit 1 of the IGCSE business studies course. Students do not need to understand an exact definition of the term opportunity cost but must be able to understand examples of the term.
1. Starting Activity: Begin with the introductory video on scarcity. Then, have the class engage in the initial activity, which involves students documenting their recent purchases and those they would make if their budget or allowance were higher, allowing for more goods and services. This exercise is designed to connect to the concept of opportunity cost, illustrating that with each purchase, they are choosing the option they believe will bring them the most satisfaction over other potential purchases. (15 minutes)
2. Physical Process - Students should read the class handout containing key terms and activities. Emphasize that the scarcity of any good is contingent on the situation, location, and the nature of the good or service itself. For example, sand might a limitless good in a desert but an economic good in a city, where it can be sold for play areas and or private beaches. (5 minutes)
3. Video Activity - Link the concepts of markets to the film 'Star Wars'. Students should grasp that the video demonstrates how economic transactions are commonplace in the film, with consumers demanding specific products and others supplying them. (10 minutes)
4. Assessment - Students can undertake the scarcity activity, either in class or as homework. The objective is to evaluate who lives and who dies based on each patient's merits. Although there is no definitive correct answer, the goal is for students to explore the different options. The conclusion is that such exercises, like the hospital scenario, are part of an economist's role, no matter how impersonal it might seem. (30 minutes)
1. Starting Activity: Begin with the introductory video on scarcity. Then, have the class engage in the initial activity, which involves students documenting their recent purchases and those they would make if their budget or allowance were higher, allowing for more goods and services. This exercise is designed to connect to the concept of opportunity cost, illustrating that with each purchase, they are choosing the option they believe will bring them the most satisfaction over other potential purchases. (15 minutes)
2. Physical Process - Students should read the class handout containing key terms and activities. Emphasise that the scarcity of any good is contingent on the situation, location, and the nature of the good or service itself. For example, sand might a limitless good in a desert but an economic good in a city, where it can be sold for play areas and or private beaches. (5 minutes)
3. Video Activity - Link the concepts of markets to the film 'Star Wars'. Students should grasp that the video demonstrates how economic transactions are commonplace in the film, with consumers demanding specific products and others supplying them. (10 minutes)
4. Assessment - Students can undertake the scarcity activity, either in class or as homework. The objective is to evaluate who lives and who dies based on each patient's merits. Although there is no definitive correct answer, the goal is for students to explore the different options. The conclusion is that such exercises, like the hospital scenario, are part of an economist's role, no matter how impersonal it might seem. (30 minutes)
Key terms:
The basic economic question - defined as limited resources and unlimited wants.
Opportunity cost - the cost or value of an economic decision in terms of the next best option foregone.
Specialisation - occurs when individuals or organisations produce a narrow range of goods or services, developing a comparative cost advantage in producing these goods and services.
1. Beginning activity
Watch the following short video which explains the concept of scarcity and then complete the activity that follows:
As IGCSE students you are examples of consumers who either consciously or otherwise make economic decisions everyday - in other words, how to spend your scarce resources. You will have a different name for scarce resources - perhaps you call it a monthly allowance, money from your parents, wages from your part time job e.t.c. Start by writing down a list of the purchases that you regularly make. Now complete this exercise by writing down a list of those goods and services which you would like to consume if your monthly budget were significantly larger. What about those goods and services which you choose not to purchase if your monthly allowance was reduced? Without knowing you are making a consumption decision based on the relative opportunity costs of your purchases.
2. Discussion on scarcity
Why is it that in some parts of the world goods such as sand or water are free goods while in other areas those same goods become economic goods and can be sold openly in the market place?
Hint:
Again the response comes down to scarcity. In parts of the world where those goods are effectively limitless they are free goods, having no commercial value while in others the scarcity of those goods makes it possible to package the good and sell it. The same applies to the packaging and sale of fresh air in the polluted cities of China. Unlike most parts of the world, some cities are so polluted that fresh air is limited in supply and can be sold commercially.
Activity 3: Links to economics activity in Starwars
Watch the following short video and then decide what other connections can we make between economics and the Star wars trilogy.
Activity 4: Scarcity within the local hospital
A small town has one hospital, which contains just one radiology machine. This is used to treat patients diagnosed with Leukaemia and without this treatment the patient would quickly die. Typically treatment lasts one year, after which the majority will no longer require treatment and be able to return to work. The one radiology machine can run for 30 hours per week and under the current budget cycle there are insufficient funds to purchase another. As the manager of the hospital you must decide who gets the treatment and who misses out. The treatment is successful in 99% of cases. The list of patients requiring treatment is as follows:
Patient A: 6 year old child, has three brothers and sisters, requiring treatment 3 hours per week.
Patient B: 32 years old female university lecturer, married with no children, 4 hours per week.
Patient C: 6 year old child who requires 10 hours of treatment per week.
Patient D: A 3 year old child with a more aggressive strain of the cancer. She currently needs 4 hours per week but may require treatment for an indefinite period due to the severity of her condition.
Patient E: 8 year old child, no brothers and sisters, requiring 5 hours of treatment per week.
Patient F: 30 year old female entrepreneur, with two young children, requiring the machine 6 hours per week.
Patient G: 30 year old male engineer with two young children, requiring 5 hours treatment per week.
Patient H: 76 year old female, who needs 2 hours treatment per week.
Patient I: A 50 year old man who needs 5 hours of treatment per week. He is married with grown up children and currently working.
Patient J: 45 year old man with no children, working in a local restaurant. Requires just 2 hours per week for just 6 months.
Patient K: A very wealthy 66 year old man who requires 10 hours per week but has agreed to purchase the hospital a second radiology machine if he is still alive in one year’s time.
Decide how you will allocate the 30 hours, in order of preference.
Hint:
Hint:
Deciding who to save and who to deny treatment is a challenging dilemma. You are economics students, but you are also human. Would you be hesitant to deny treatment to an 8-year-old child? From an economist's perspective, it might make sense. An 8-year-old child isn't economically active, and an economist might prioritise more economically productive patients. Patient K presents another complex case; saving this wealthy individual would mean sacrificing a third of your radiology time this year, but it comes with the promise of purchasing a new machine the following year.
This lesson is available as a PDF file at: 
Activities