Republic of the Philippines

NUEVA ECIJA UNIVERSITY OF SCIENCE AND TECHNOLOGY

SUMACAB CAMPUS
ISO 9001:2015 Certified

MICROECONOMICS:
Choice In The World Of Scarcity

JANICE SORO CUCIO

REVIEW :
What is the Circular flow diagram?
The Circular Flow Diagram is a model
economists use to show the
characteristics of and relationships that
exist between households and
businesses in the economy.
 PREVIEW:
Scarcity and Choice: https://youtu.be/-0od0t45oeY

Activity question:
Give (3) examples of scarce goods.
Are all goods that are scarce important?

How does you value scale change?

 Budget Constraints and Choices
Budget Constraint
refers to all possible combinations of goods that someone can afford, given
the prices of goods and the income (or time) we have to spend.
2$
Example (from the video)
1 Amount
2 Choices 50
cents
Charlie
BUDGET : 10$
Types of Budget Constraints :
• Limited amount of money to spend on the things we need and want.
• Limited amount of time.

The graph is showing a budget line as a downward

slope representing the opportunity set of bus tickets
and burgers
Budget Constraints Results:

• You have to make choices.

• Every choice involves trade-offs.

• No matter how many goods a consumer has to choose from, every choice has an
opportunity cost, i.e. the value of the other goods that aren’t chosen.

• The budget constraint framework assumes that sunk costs—costs incurred in the
past that can’t be recovered—should not affect the current decision.
Sunk Costs :
Sunk Costs: costs incurred in the past that can’t be recovered.

Example :
Expected Revenue : 100,000
Expected Project Cost : 40,000
Additional Cost : 40,000 80

Example :
Expected Revenue : 100,000
Project Cost : 40,000
130
Additional Cost : 90,000
Opportunity Cost:
Opportunity Cost: measures cost by what is given up in exchange; opportunity cost measures the value of the
forgone alternative.