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Lesson

# Opportunity Cost – Consumers

Updated: August 15 2023,
Author: Harlan Day

### Learning Objectives

Students will be able to:

• Define opportunity cost.
• Explain that there is an opportunity cost to every consumer choice.
• Identify the opportunity cost of a consumer choice.

### Teaching Tips

1. Important! Students frequently think that the sum of their various alternatives is their opportunity cost. This is incorrect since only one alternative choice is actually forgone. For example, suppose John is willing and able to purchase good A, B, or C, in that order of preference. He will purchase A. Good B, not B and C, is his opportunity cost. Step 6 in the Teaching Procedure below teaches this important point.
2. Do not introduce the concept of money in this lesson. Students need to understand that the ability to purchase (income) typically comes from prior production of actual goods and services.
3. Make sure students understand that the good they produced to make a trade is not their opportunity cost. Rather, their second choice from the goods they want to trade for is the opportunity cost.

### Process

1. Briefly introduce the concept of opportunity cost, giving several examples. Say, “When individuals produce goods or services, they normally trade (exchange) most of them to obtain other more desired goods or services. In doing so, individuals are immediately confronted with the problem of scarcity – as consumers they have many different goods or services to choose from, but limited income (from their own production) available to obtain the goods and services.Scarcity dictates that consumers must choose which goods and services they wish to purchase. When consumers purchase one good or service, they are giving up the chance to purchase another. The best single alternative not chosen is their opportunity cost. Since a consumer choice always involves alternatives, every consumer choice has an opportunity cost.”

Tell students that the activity they will do next will help them better understand this concept.

2. Ask students if they have ever purchased something at a store. Ask them if they would like to have a store in their classroom. Identify a table in the classroom to serve as a store. Point out that there is one major problem – there are no products in the store! Ask students if they would like to produce some products for the store.
3. Tell students that they are now producers. Briefly explain this concept. Pass out a small amount of modeling clay to each student. Tell students to use the productive resources (natural, human, capital) to produce one good similar to the one they produced in Lessons 2 and 3. Tell them to do good work since their products will be sold at the class store
4. After 5-10 minutes, each child describes his or her product and places it in the store.
5. Tell the students that now they will be consumers. Briefly explain this concept. Choose a student volunteer, say John, to shop at the store. (John must prefer at least two of the other goods to the one he has produced himself.) Ask John to identify the two goods produced by other classmates that he most wants and would be willing to trade for. Place these two goods on the store “counter.” John must then use his goods to “pay” for one of these two goods. (He can’t purchase both because of scarcity!) Identify the good not purchased as John’s opportunity cost. Ask, “What would be the opportunity cost if he chose the other good instead?” (The good not chosen). Let John take the good to his desk. Ask other students if they would like to shop at the store. Repeat as time permits.
6. Next, ask some of the student consumers to identify three goods (instead of two) that they most want and would be willing to trade for. The opportunity cost will then be the one good that was their second choice. (See Teaching Tip 1.)
7. Conclude the activity by summarizing the concepts identified in the Teaching Objectives above.

### Conclusion

Ask students to define the following concepts: opportunity cost, scarcity, consumer and producer.

### Assessment

Have the students complete the Opportunity Cost – Consumers Handout and review the answers.

Subjects:
Economics