This lesson teaches students about opportunity cost through some steps of buying a house. It also shows students how advertising affects consumer decision-making.
- Understand that choices require trade-offs, and that these trade-offs are valued differently by different people.
- Establish criteria for personal decision-making as related to the purchase of a home.
- Describe the term opportunity cost.
Ask the students: Where do you live? Where do you want to live when you are an adult? Will you buy a house?
Buying your first home, or any home, involves a good deal of planning, prioritizing, and decision-making. When the time comes, the students will have to make decisions about what they want, and what they are willing to give up, in order to make the best decision they can. Economics involves making choices. This lesson will help the students learn how to identify and compare alternatives when making a financial decision.
[Note to teacher: The following link requires RealPlayer: www.real.com/dmm/realplayer/search .]
Interactive Activity: This interactive gives students the opportunity to evaluate a list of houses and decide which aspects are most important to them.
PDF Reality Realty
"Merriam-Webster Online Thesaurus": Students may use this site if they need some additional adjectives when writing short paragraphs in the interactive descriptions.
"Marketplace Audio File": Listening to this radio broadcast will provide students with a real life application of opportunity cost for young professionals.Titled from August 6, 2001.
Realtor websites: These sites will offer real homes being sold in areas near the students- useful if newspaper ads are unavailable or if accessing the internet is more convenient in the classroom.
Provide the students with print or online housing advertisements and discuss the following questions with the class:
Why did you select that house? List five reasons.
[Answers will vary]
Which words in the ad made the house appealing?
[Answers will vary]
What factors about the house did you find most important?
[Answers will vary]
For ads check the following realtor's websites:
Enter your zip code and a search radius then click "Find Properties!"
Select one of the Century 21 offices that come up
On the right hand menu select "view all our listings"
Enter your zip code in the box that says "Search Millions of U.S. Properties"
Enter your City, State, County, and Zip code in the Quick Searches Box
- TIP: If you are having trouble finding houses, expand your search radius under the advanced search option if one is available.
Have the students listen to the Marketplace from August 6, 2001 . Play from 1:10 through 3:12.
Then have the students re-read their chosen advertisements and decide what the factors are that made them most interested in that home. With the entire class, discuss the following:
- If you were buying a house, would you choose to live further from your job in order to get a bigger house? Why or why not?
- What factors would you prioritize? Cost? School system? Yard size? Number of bedrooms? Age of the home?
- Why do different people choose different options for their homes? How do you decide when you have to give up something you really want?
Tell the students that an opportunity cost is the value, whether monetary or personal, of what we give up in favor of something we have decided is more important. Every decision has a cost – the next best alternative we give up in favor of the chosen product or service.
When buying a home, purchasers weigh all the factors they would like in a home, and then they pick the closest combination of factors to their “ideal” in order to make a decision. The next best alternative is the opportunity cost in that decision.
As a group, help the students make a list of factors students in your class would prioritize when making a decision about buying a home. Using the group list, allow the students to take turns sharing the top three factors they would choose as most important. Have someone in the class make tally marks next to each factor as it is chosen as someone's “number one” priority.
Ask: Does your class share priorities, or are there differences? Look at the housing advertisement from the earlier activity and decide the following:
- How did the advertisements affect which house you chose?
- Were there descriptors listed in one advertisement that made you look for the same descriptors in another advertisement?
- Do you think buyers have more influence over what sellers advertise or do sellers' advertisements have more influence over what buyers look for?
Have the students discuss with a partner whether they would still choose that house over another one based on the criteria they have listed.
The students should complete the interactive activity titled "Reality Realty." (A PDF version of the houses and their descriptions is also available). In this activity, they will choose from a selection of homes. They will also write two descriptions demonstrating their understanding of opportunity cost and the way different people may make different choices. In the first description, they will write a brief paragraph about what they find appealing about the chosen house.
In the second description, the students will focus on the factors they, or their classmates, listed as the ones that would be most appealing to potential buyers and why they would choose it over the other homes listed. The students will describe the things the home has that are most important to them, and then discuss what is missing from their list of priorities and why they are willing to give it up.
If the students need help thinking of adjectives to describe their house, they can click on the help button or use the Merriam-Webster Online Thesaurus .
Have the students take turns sharing their descriptions with their classmates. Ask them to explain how they used theirr understanding of opportunity cost to make decisions about which home they would select.
Have the students write a letter to their parents describing their first home purchase. Have the students tell their parents about the things they considered when making their decision. Have them answer the following questions: What did you prioritize? What did you give up? Explain how you came to your decision, and whether you feel you made the right decision for yourself.
Have the students answer the following questions about a house you create. If they have questions, have them refer to the houses in the "Reality Realty" activity or the print version of the houses and their descriptions.
How would buying a house be different if advertisements included good and not so good things about the house being sold?
[Answers will vary, students should be thinking about the opportunity cost of researching and viewing different homes. Presumably, if more information were included in the description (good and bad), consumers would be able to be more selective in choosing which houses too seek more information.]
How would opportunity cost still apply to the decision making process?
[Opportunity cost would likely be lessened as it might be easier to sort through information about different homes. Opportunity cost is less but still exists and could be significant.]
After they complete the activity, have the students print their answers and discuss them in small groups or as a class.
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