SCARCITY: Productive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.
Students will be able to use this knowledge to: Identify what they gain and what they give up when they make choices.
Students face many choices every day. Is playing video games the best use of their time? Is working at a fast-food restaurant better than the best alternative job or some other use of their time? Identifying and systematically comparing alternatives enables people to make more informed decisions and to recognize often overlooked relevant consequences of choices they or others make.
Some students believe that they can have all the goods and services they want from their family or from the government because goods provided by family or by governments are free. But this view is mistaken. Resources have alternative uses, even if parents or governments own them. For example, if a city uses land to build a football stadium, the best alternative use of that land must be given up. If additional funds are budgeted for police patrols, less money is available to hire more teachers. Explicitly comparing the value of alternative opportunities that are sacrificed in any choice enables citizens and their political representatives to weigh the alternatives in order to make better economic decisions. This analysis also makes people aware of the consequences of their actions for themselves and others, and could lead to a heightened sense of responsibility and accountability.
DECISION MAKING: Students will understand that:
Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Many choices involve doing a little more or a little less of something: few choices are "all or nothing" decisions.
Students will be able to use this knowledge to: Make effective decisions as consumers, producers, savers, investors, and citizens.
TRADE: Students will understand that: Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.
Students will be able to use this knowledge to: Negotiate exchanges and identify the gains to themselves and others. Compare the benefits and costs of policies that alter trade barriers between nations, such as tariffs and quotas.
MONEY AND INFLATION: Students will understand that: Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services. The amount of money in the economy affects the overall price level. Inflation is an increase in the overall price level that reduces the value of money.
Students will be able to use this knowledge to: Explain how their lives would be more difficult in a world with no money, or in a world where money sharply lost its value.
Most people would like to have more money. Students, however, often fail to understand that the real value of money is determined by the goods and services money can buy. Doubling the amount of money in an economy overnight would not, by itself, make people better off, because there would still be the same amount of goods and services produced and consumed, only at higher prices. Money is important to an economy, however, because as it replaces barter, it makes exchange less costly. As a result, people are more likely to specialize in what they produce, and then use money to buy whatever they want to consume, this increases the overall levels of production and consumption in a nation.
Understanding what determines the real buying power of money and earnings will help students make better decisions about their jobs and spending. Understanding the importance of money to society will also help them make more informed decisions about national policies related to banking, controlling the supply of money, and inflation.