Opportunity Cost & Scarcity
What is the term for the value of the next best alternative you give up when making a choice?
Opportunity cost
What is the name of the decision-making model that weighs benefits and costs to help make choices?
PACED decision-making model
What do we call what you gain from consuming or doing one more unit of something?
Marginal benefit
What is something that motivates or encourages a person to take a certain action?
Incentive
What do we call a decision where the expected benefits are equal to or greater than the costs?
Rational decision
What term describes a situation where resources are limited but wants are unlimited?
Scarcity
In the PACED model, what do the letters P-A-C-E-D generally help people do?
Identify the Problem, list Alternatives, consider Criteria, Evaluate, Decide
What is the term for what you give up when you do one more unit of something?
Marginal cost
Give an example of a reward incentive.
Extra allowance for doing chores (or similar examples)
Why is it important to compare benefits and costs before making a decision?
To ensure the choice is worthwhile and resources are used wisely.
Why do scarcity and opportunity cost force people to make choices?
Because people want more than is available, so they must decide how to use limited resources.
Why is the PACED model useful for making rational decisions?
It organizes thinking so benefits outweigh costs and helps avoid impulsive choices.
True or False: Marginal benefit should always be greater than marginal cost for a rational decision.
True
Give an example of a penalty incentive.
Losing screen time for breaking rules (or similar examples)
True or False: A rational decision ignores what you give up.
False
If a student chooses to study for an exam instead of attending a concert, what is the opportunity cost, and why is it important to consider?
The opportunity cost is missing the concert experience. Considering it helps the student understand the trade-off between leisure and academic success.
Compare how the PACED model could be used differently for a small personal decision versus a big financial decision.
For a personal decision, it might involve fewer criteria like time and enjoyment; for a big financial decision, more factors like cost, risk, and long-term impact are weighed.
If a factory produces one more toy and the profit is less than the cost to make it, what should the factory do and why?
The factory should not produce the additional toy because the marginal cost exceeds the marginal benefit, which would decrease profit.
Explain how both positive and negative incentives can affect the same decision differently.
Positive incentives (reward) may encourage a choice, while negative incentives (penalty) may discourage an alternative, influencing the final decision.
Give an example of a rational decision where opportunity cost plays a major role.
Choosing to spend $50 on a textbook instead of a concert ticket because the textbook will help you get a better grade, outweighing the cost of missing the concert.
Explain how scarcity can influence both individual choices and society’s decisions, giving one example of each.
Individually, scarcity forces someone to budget time or money; for society, limited resources mean government must decide how to allocate healthcare, education, or infrastructure.
Create a real-life scenario where failing to use the PACED model could lead to a poor decision. Explain what would be done differently using PACED.
Example: Impulsively buying an expensive phone. Using PACED, the person would compare alternatives, costs, and benefits, and might choose a cheaper phone or wait for a sale.
How can marginal thinking help someone decide whether to spend one more hour studying or one more hour practicing a sport?
Compare the additional benefits of each option (e.g., higher test score vs. skill improvement) with the additional costs (lost time for the other activity) to make the most rational choice.
Imagine a company wants employees to increase productivity. Give two different incentives it could use and explain why each would be effective.
Reward incentive: bonus for exceeding goals → motivates extra effort. Penalty incentive: warning for missing deadlines → discourages slacking. Both guide behavior toward higher productivity.
Explain how rational decisions, marginal thinking, and incentives all interact when a person is deciding whether to take a part-time job while in school.
They weigh additional benefits (income, experience) vs. costs (time, stress), consider what motivates them (incentives like money or skills), and make the choice where benefits outweigh costs—applying all three concepts.