WHAT IS ECONOMICS REALLY ABOUT?

Scarcity, Choice, Opportunity Cost in the Health Sector

These machines are used for patients who have kidneys that
don't work properly ~ without dialysis the patients would
quickly die. They are expensive - costing
about$100,000.
Some patients can get a kidney transplant, which
means they won't need dialysis any longer.
A hospital in a town has one dialysis machine that can
run for 30 hours per week. As the boss ofthe hospital,
you must decide who gets the treatment.
There are a number of patients who require
treatment and their needs are given below.
Patient A: 6 year old child who needs 10 hours per week. 1
awaiting a kidney transplant which is expected to occur in
Patient B; A 55 year old man who needs 5 hours per week. He is married with grown up
children.
Patient C: A 3 year old child who will need dialysis indefinitely. Currently needs 4 hours per
week.
Patient D: 78 year old female, 4 hours per week.
Patient E : 7 year old child, has three brothers and sisters, 4 hours per week.
Patient F: 8 year old child, no brothers and sisters, 5 hours per week,
Patient G: 30 year old female, two young children, 6 hours per week.
Patient H: 30 year old male, two young children, 5 hours per week.
Patient I; 30 year old male, no children, 4 hours per week,
Patient J: 45 year old man with no children, Needs 6 hours per week but has a brother who
will donate a kidney, This will take place in six month's time,
Patient K: A 65 year old man who requires 10 hours per week, As he has quite wealthy, he has
promised to buy another dialysis machine for the hospital if he is still alive in one year's time,

Decide how you will allocate the 30 hours, in order of preference.

Name t h a t

Resource

C l a s s i f y e a c h o f t h e f o l l o w i n g as a h u m a n r e s o u r c e
(H), c a p i t a l r e s o u r c e (C), n a t u r a l r e s o u r c e (N),
e n t r e p r e n e u r i a l resource (E), or not a p r o d u c t i v e
'economic r e s o u r c e ( X ) :

1.

_,
.

2.

a l u m b e r j ack
trees i n a forest
__

,
_

the
100

,
.

an o r e - h a u l i n g t r u c k a t a m i n e r a l
an o r e - h a u l i n g t r u c k d r i v e r

a God o f War I I game v i d e o

an o f f i c e computer

.
,

a carpenter
a carpenter's

a c o a l - f i r e d power p l a n t
c o a l d e p o s i t s i n Wyoming

3.

4.

5.

,
.

6 .

7.

8.

,
,
_____

9.

,
,

10.

a c a s h r e g i s t e r i n an O l d Navy s t o r e
a $100 b i l l i n a c a s h r e g i s t e r

_______
______

e f f o r t s o f B i l l Gates a t M i c r o s o f t
shares of M i c r o s o f t stock

a barber's
a haircut
tuna
tuna

mine

hammer

scissors

i n the ocean
i n a can

k i d s d e c i d i n g t o set up a lemonade
k i d s m a k i n g t h e lemonade

stand

COLUMN 1
kind Preserved as
Wilderness
(millions of acres)
0
1

2
'3
4
5
6

COLUMN 2
Land Remaining for
Mineral Produoilon
(millions of acres)
6
5
4
3
2
1
0

Plot the passible alternative amounts

of wilderness preserves and minerals
tins six million acres of land oan
px'Adnce, using the figures in Oolurans
1 and 8,
2, Find and label the following points!
(0,24) as A, (2,21) as B, (4,14) as 0,'
(6,0) as D, (2,14) as B, and (4,21) as J ,
8, Respond to the following questions,
writing your answers on a separate
sheet of paper,
1

COLUMN 3
Amount of Minerals
Produced
(Ions)
24
23
21
18
14
8
0

a, Which points on tlie curve represent

, "all or nothing" alternatives?
b, Whioh points on the curve
represent "a little of this and a
little of that" alternatives?
c, How does the curve reflect scarcity?
d, Is it possible to produce option B?
e, How does the ourve illustrate
trade-offs?
f, Which alternative represents the
"best" choice?

Qualify 24
Minerals
Produced 20
(toils)
16

From Eoonomias

1 2
3 . 4 5 6
Quantity or Land Preserved qs Wilderness
(millions or acres)

and tho Environment

National Cowutl on. Economio Education, New York, NY

Microwaves o r Cell Phones?

Instructions:
_

- - - - - - usmgtne microwave/ceil phone resource cards, determine eacn

oomDinatlon of cell phones and microwaves xnax couid be produced by this company, Plot and label a production
possibilities frontier and answer the questions below,
A

G
0

Cell Phones
Microwaves

A,

What Is the opportunity cost of producing 8 cell phones?

"

B,

What Is the opportunity cost of producing 1 cell phone?

C,

What Is the opportunity cost of producing 4 microwave ovens?

D,

What Is the opportunity cost of producing 1 microwave oven?

E,

Would you suggest this company to make 1 microwave and 2 cell phones? Why or why n<

F,

Would you suggest this company to make 40 cell phones and 8 microwaves? Why or why

Name}

Production

Possibility

Frontiers

Following is a production possibilities table for two commodities: wheat and

automobiles. Wheat is measured in units of 100,000 bushels and automobiles in
units of 100,000.
Combination
A
B
C
D
E
F
G
H

Wheat
0
7
13
18
22
25
27
28

Automobiles
7
6
5
4
3
2
1
0

1. Plot the data from the table to obtain a production possibilities curve, Place
wheat on the vertical axis and automobiles on the horizontal axis, Label each
point with its letter (A-H), and be sure to "connect the dots" (draw in the
curve),
Wheat
35
(100,000's of bushels)

30
25
20
15
10
5
0
Automobiles
(100,000's)

2, What is the opportunity cost of increasing wheat production from 700,000

bushels to 1 300,000 bushels?
. automobiles
3, What is the opportunity cost of moving from production point G to production
point D?
_ _ _ _ _ _ _ _ _ _ _ bushels of wheat
4, On your production possibilities frontier drawn above, which point or points
are possible for this economy to produce?
a, All points: A, B, C, D, E, F, G, H, I, J, K, L, M
b, OnlyA, C, J, M
c, OnlyA, B, C, D, E, F, G, H
d, Only I, J, K, L, M
e, OnlyA, B, C, D, E, F, G, H,l, J
f, OnlyA
g, Only M
5, On your production possibilities frontier drawn above, which point or points
represent the maximum possible production of automobiles?
a, A
b, A&E
c, H
d, J
e, H&J
f, L
6, On your production possibilities frontier drawn above, which point or points
are NOT possible for this economy to produce?
a l&J
b, J
c, K,L,&M
d, K
e, A,G,&H
7, On your production possibilities frontier drawn above, which point or points
are efficient?
a, All points; A, B, C, D, E, F, G, H, I, J, K, L, M
b, Only A, C, J, M
c, OnlyA, B, C, D, E, F, G, H
d, Only I, J, K, L, M
e, Only A, B, C, D, E, F, G, H, J, J
f, . OnlyA
g, Only M

Three Bears, Two Goods, and One Crazy Girl

Once upon a time there were, three bears living in the forest; Papa Bear,
Mama Bear, and Baby Bear (sound'famillar?), Their total joy in life came
from eating salmon and berries, Th'ey caught salmon in a nearby river and
gathered benies in the forest, Each day they had only so much time to fish
and/or gather. However, during this time they were not equally productive
as illustrated below;
Number of salmon
caught if'all the
time is spent
Papa Bear
Mama Bear
Baby Bear

,
.

Pounds of berries
gathered i f ail the
time is spent
gathering

'4
2
'1

2
6
'4

This says, for example, that i f Mama Bear spent all her time ilshing.she '
would only catch two salmon, '.'If sh spent all her time gathering berries;; spje
would collect six'pounds, ' If*she sp'ent'hal'f'her time".doing each thing) sire' '
would end up with one! salmon and three pounds of benies, Because of/his
size and experience', Papa Beards the,b.es,t fisherbear as he is able' tp hang ,
overthe river and 'catch\the salnipn'Mfheh they jump. On the other .'hand,..' ; _
Mama Bear is- the best .gatherer as this requires getting under the'berry
'
bushes, something'thateyen.'BabyBearisprptty goodat,
,
.
:

Task #1 Given the information above, find this family's production-. ,

possibilities, cujtfe for salmon andb.erries,
. '.',. ';, v'

Now suppose "new.age" &oldl'lopks'eomes along and instead of breaking,' _ ,

their chairs andisleepin'g in their beds; she decides tq join the famiiysq.that.
'she can be "que withnttiu'e?' I f Goldilocks spends all her time fishing.-she
can catch two salmon, while i f dhe spends' all her time gathering.she.'cafi'
collect four pounds of benies,
. . ...
\
Task#2; Mhd,the family's hew'.prq^
, ' Gbidilocks jofas the family,

'

'

''
;:' ,

YA
16

10 11

12 13 14 15 16 17 18 19 20 21

22 23 24 25 26

"X

YA
16

10 11

12 13 14 15 16 17 18 19 20 21

22 23 24 25 26

"X

(__} Math-Aids.Com

Below i* a Ii*l of example* of economic activity. Di$cu** the example* with the other
people in your group. Then decide, for each example, whether it reprejent* a market,
traditional, or command economic $y*tem. Circle the M, T, or C to repre*ent your
an*wer. Have rea*on* ready to support your decision*, Before you return to the
whole group, be jure to add two or three example* of your own for each category in
the column* below.
1, Ben becomes a police officer because his father was one - it runs In the family. (M/T/C)
2, Rachel thinks that her .community needs another discount computer store, so she decides to start her
own business, (M/T/C)
3, Norton is retired now, so he collects Social Security, (M/T/C)
4, Michelle refused to buy a pair of jeans because they cost too much, (M/T/C)
5, Every September George buys a new Chevrolet because every year he buys a new Chevrolet, (M/T/C)
6, Jen and her family live in housing which the federal government provides at a reduced rent, (M/T/C)
7, To increase his income, Huang Peilin raises chickens, ducks, and geese which he and his family sell at a
local free market in northern China, (M/T/C)
8, The Soviet State Planning Commission (Gosplan) decides how many tons of coal should be produced,
(M/T/C)
9, Stock market prices decline in Tokyo because of large offerings of steel stocks for sale, (M/T/C)
10, In Mexico City, business slacks off for lunch at 2:30 pm and gets started again around 5:00 pm, (M/T/C)
11, Soviet doctors may treat patients at home for a fee, (M/T/C)
12, Soviet doctors are employees ofthe state; any fee they charge for home treatment is regulated by the
state, (M/T/C)

Type* of Economic Acfciv/ity - Vour Own Examples

Command

Traditional

Market:
1.

1.

I.

2.

2,

2.

3,

3,

3.

Economic Systems

The Jewelry Making

Game

1. W h a t is scarce in t h i s s c e n a r i o ?
2. W h a t o p p o r t u n i t y costs do you f a c e in p r o d u c i n g j e w e l r y?

To complete the chart, think in terms of how the directions for each round instructed you to produce.
round simulates
the simulation,

Each

1 type of economic system. Answering the questions carefully as they apply to not just
but to how these systems produce in the real world.

Market

Command

Traditional

Who owns the

resources?

W h a t is t h e incentive t o
produce?

How d o you interact with

o t h e r s in producing?

Who decides what t o

produce?

W h o gets w h a t is
produced?

Is t h e s y s t e m efficient?
Why or w h y not?

Is t h e i r f r e e d o m of
choice? Why or why not?

3 . To w h i c h s y s t e m does t h e United States belong? Provide evidence for your decision.

4 . W h a t are t h e aspects of a s y s t e m t h a t is " m i x e d " (a blend of m o r e t h a n o n e system)?

LESSON SIXTEEN

Activity 4
The Circular Flow f Economic Activity
Part I:
Households supply the natural resources, human resources, and capital they own to businesses in
exchange for money income payments - wages, salaries, rents, interest, and profits. These income
payments are used to purchase the finished goods and services supplied by businesses. Business
firms use the proceeds from these sales to purchase more productive resources from households, to
make more goods and services to sell, This is how the circular flow of productive resources, goods
and services, and money income payments, is established and maintained.
Part If;
In the circular flow chart shown below, the curved linos widi arrows show the direction of
payments and products that flow between households and businesses, The outer set of lines shows
the flow of income (money payments). The inner set of lines shows the flow of finished products
and productive resources for which the payments are made. Label each line or empty box to
complete the circular flow model of a simple economy. (One label, for the flow of finished goods
and services [ECONOS], has been provided to help you get started.)

From Focus: High School Economics, National Council on Economic Education, New York, N Y

189

THE CIRCULAR FLOWS OF ECONOLAND

LESSON 10

ACTIVITY ICA
The

Flows Among Government, Households, and Businesses

HOUSEHOLDS

GOVERNMENT

BUSINESSES

H I G H SCHOOL ECONOMICS 3RD E D I T I O N COUNCIL FOR ECONOMIC EDUCATION, N E W YORK, NY

237

10
BROAD SOCIAL GOALS OF AN ECONOMY

LESSON 28

Broad Social Goals of an Economic System

Economic efficiency means allocating scarce productive resources to produce
the goods and services that people want and using inputs i n a manner that keeps
production costs as low as possible.
Economic equity means what is "fair." Economic actions and policies have to
be evaluated i n terms of what people think is right or wrong. Equity issues
often arise i n dealing with the distribution of income and wealth. To some, equity
means providing equal opportunity; to others, equity means equality of outcomes.
Economic freedom means allowing consumers to decide how to spend or save
their incomes, allowing workers to change jobs and join unions, and allowing
individuals to establish new businesses and close old ones.
Economic growth means increasing the production of goods and service over
time. Economic growth is measured by changes i n the level of real gross domestic
product (GDP). A target annual growth rate of 3 percent to 4 percent i n real GDP
is generally considered reasonable and sustainable.
Economic security means protecting consumers, producers, and resource
owners from risks that exist i n society. Each society must decide from which
uncertainties individuals can and should be protected, and whether individuals,
employers, or the government should provide or pay for this protection.
Economic stability means maintaining stable prices and f u l l employment and
keeping economic growth reasonably smooth and steady. Price stability means
avoiding inflation or deflation. Full employment occurs when an economy's scarce
resources, especially labor, are fully utilized.

H I G H SCHOOL ECONOMICS 3RD E D I T I O N COUNCIL FOR ECONOMIC EDUCATION, N E W YORK, NY

451

LESSON 28

BROAD SOCIAL GOALS OF AN ECONOMY

ACTIVITY 2CU
Diary of Student Intern A
Week 1: I t was so exciting to start my internship with Congresswoman Aequus.
Yesterday I attended a subcommittee policy meeting. The main topic of discussion
was saving domestic jobs i n the face of international competition, particularly now
that we are experiencing the longest recession since the 1930s. She strongly supports
a bill that requires at least six months' notice to employees of any downsizing
decision. This makes sense to me, as my own family is hurting financially due
to my mother's job loss. I t is difficult to make educational plans for me when
our family's resources are so uncertain.
Week 3:1 am amazed by how much time is needed to prepare legislation for vote.
Congresswoman Aequus' original draft was well received, but many changes were
proposed by others on the subcommittee. One interesting idea is to reqtiire that
any layoffs of hourly workers be matched by a proportionate layoff of salaried
workers at the company. This would ensure that financial losses would be shared
by all levels of employees, not just the lowest level. Another idea is to require that
top management salaries be tied to the relative levels that existed i n 1990. Back
then, executives earned five times the income of an average hourly worker. Now,
that figure is 50 times a typical worker's income! We'll soon see i f either of these
ideas becomes part of the bill.
Week 5: This week, the latest unemployment statistics came out, and the news
continues to be grim. Unemployment rates are still high, with no relief in sight,
according to respected economists. Given the latest data, the siibcommittee is
even more committed to keeping further job losses from happening. A controversy is developing this week following the announcement that the federal government is providing funds to a giant corporation to keep i t out of bankruptcy.
Aequus supports the "bailout," which may save the corporation and preserve jobs.
Another proposal mentioned today affects government offices that are considering downsizing. The idea is to require an alternative to layoffsby insisting that
departments cut all workers' hours (or days) by a small fraction, instead of laying
off workers. That way, the burden of a sluggish economy is borne by all, not just
a select few. Congresswoman Aequus has also begun work on a bill to regulate
the financial industry more closely, which she says will reduce the probability of
future financial crises. She believes that even i n a market economy, some regulations are necessary for the economy to work well.
Week 7: Is i t possible that my internship is coming to an end? I learned so much
about how legislation is created! Now I am motivated to continue my studies in
economics and political science. Perhaps someday I will be elected to public office
and help along an intern like me.
452

H I G H SCHOOL ECONOMICS .Sun E D I T I O N COUNCIL EOR E C O N O M I C EDUCATION, NEW YORK, N Y

BROAD SOCIAL GOALS OF AN ECONOMY LESSON 2 0

ACTIVITY 28.3
Diary of Student Intern B
Week 1: I t was so exciting to start my summer internship with Congressman Libre.
Yesterday, he allowed me to attend a subcommittee policy meeting. The main topic of
discussion was saving domestic jobs i n the face of international competition, particularly now that we are experiencing the aftermath of the longest recession since the
1930s. He strongly opposes a bill that will require at least six months' notice to
employees of downsizing decisions. He argues that companies must be allowed to
make business decisions i n their best interests, including how many workers to
employ. Otherwise, they become unprofitable and-in the long rungo out of business,
resulting i n all jobs being lost. He argues that domestic companies have difficulty
competing internationally because they face significantly more regulation than their
rivals. He proposes to cut many regulations, which he says burden businesses with
unnecessary costs that make i t difficult to compete i n a global economy.
Week 3:1 am amazed by how much time is needed to prepare legislation for consideration by the full House. Congressman Libre's proposal to deregulate was quite
provocative i n some circles and stimulated debate on both sides. A controversy is
developing this week with the announcement that the federal government is providing funds to a giant corporation to keep i t from going into bankruptcy. Congressman
Libre is outraged by the "bailout." He argues that a freely operating market creates
the most favorable conditions for maximizing the exchange of goods and services of
the type and quantity most desired by consumers. I t makes sense to me that subsidizing a company that made bad choices is an incentive for i t to do more ofthe same!
I also wonder i f companies lose their drive to become bigger and better as a result.
Week 5: This week the latest unemployment statistics came out, and the news
continues to be grim. Unemployment rates are still high, with no quick relief in
sight, according to respected economists. Congressman Libre argued i n subcommittee yesterday that small business is the engine of job creation, as most new
jobs come from companies with fewer than 50 workers. He proposes tax cuts for
entrepreneurs, and special incentives for small-business development. Although
it may take many months to see the results, he is confident that i t is the best path
toward economy recovery and expansion. He is concerned about a new bill that
would limit management salaries to an amount equal to five times that of the
average worker i n the company. He wonders why entrepreneurs would start
businesses i f they can't earn a good profit from their work.
Week 7: Is i t possible that my internship is ending? I learned so much about how
legislation is created. Now I am motivated to continue my studies i n economics
and political science. Perhaps someday I will be elected to public office and help
along an intern like me.
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453