Economics for Leaders Economic Growth & Scarcity

Economics for Leaders


Economic Growth & ScarcityEconomic Growth & Scarcity


Hypothesis for the Week:

Human prosperity and social cooperation develop

spontaneously in societies that protect private property rights

and encourage voluntary trade.


Why Should We Why Should We Care?Care?




Why Can’t You Have It All?

SCARCITY: the FACT that resources are limited and

human wantsandneeds are unlimited

Not enough to go around!


Economic Reasoning Principle #1: People choose, and individual choices are the source of social outcomes.

Scarcity necessitates choices: not all of our desires can be satisfied. People make these choices based on their perceptions of the expected costs and benefits of the alternatives.


Why can’t we have all we want?

Available resources are limited Land (57,506,000 sq mi. & not even all habitable!) Labor (6,7 bil. souls x 24 hrs a day) Capital (less than ∞, trust me) Entrepreneurship (not everybody is Bill Gates)

Human desires are boundless


Are YOU Never Satisfied ?

– It’s not just you out there


Scarcity forces us to choose


So…Although we cannot have it all…

…we still can have SOME of it. What shall we have? How much of it? How shall we produce it? Who will get it?

Scarcity implies the need to make CHOICES!


Questions:Why are some countries rich and others poor?Why have some countries experienced economic growth and others have not? (What factors lead to economic growth?What can be done to promote economic growth and reduce poverty?


Low, Middle, & High Income Nations

Why are some countries rich and others poor?


Economic Growth

Economic growth raises standards of living, even in the continuing face of scarcity


~1750

Population Growth and Important World Events


World GDP per capitaSource: http://econ161.berkeley.edu/tceh/2000/world_gdp/estimating_world_gdp.html

178138133

6539

679

98

0

1000

2000

3000

4000

5000

6000

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Year

19

90

do

lla

rs


Economic Growthimproves the lives of

the poor by making the pie bigger

Bigger “slices” mean higher standards of living


The Secret to Economic Growth: Productivity

The output produced from a given The output produced from a given set of resources in a given period of set of resources in a given period of time. time.

Increasing productivity means that Increasing productivity means that greatergreater output is produced from a output is produced from a given set of resources in a given given set of resources in a given period of time. period of time.


Key to Productivity:Institutions

the formal and informal “rules of the formal and informal “rules of the game” that shape incentives the game” that shape incentives and outline expected and and outline expected and acceptable forms of behavior in acceptable forms of behavior in social interaction.social interaction.

Institutions in your life:


What are the “rules of the game” (the accepted and expected forms of social

interaction) in:

Dating ?


Institutions Matter:

Property rightsProperty rights

The rule of lawThe rule of law

Open marketsOpen markets

Entrepreneurship and innovationEntrepreneurship and innovation


Institutions Shape Incentives

The reward or penalties that influence people’s choices and behavior.


Economic Reasoning Principle #2: Choices impose costs; people receive benefits and incur costs when they make decisions.

The cost of a choice is the value of the next-best alternative foregone, measurable in time or money or some alternative activity given up.


Opportunity Cost

The value of the next best or forgone alternative.


Marginal Cost = cost of next

Action, Choice, Unit of production

Marginal Benefit = benefit of the next

Action, Choice, Unit of production


Choices are made at the Margin

Our only choice is the next choiceOur only choice is the next choice

Marginal = additional, next, a little Marginal = additional, next, a little more or a little lessmore or a little less


The “Big Ideas” from Lesson 1:

1. Scarcity forces us to choose among alternatives2. Economic growth gives us more to choose from

and raises standards of living by:

– reducing infant mortality, – Increasing life expectancy, – reducing hunger, – improving environmental quality, and – reducing the incidence of debilitating

diseases.


The “Big Ideas” from Lesson 1:

3. Some institutions and institutional arrangements encourage economic growth and some do not.

4. The institutions that foster growth and economic development include: Open markets Property rights and the rule of law Entrepreneurship and innovation


The poverty of some nations and the wealth of others is not an accident; it is the result of

choices

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Economics for Leaders Economic Growth & Scarcity