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1. Scarcity
• Scarcity is the central economic problem• unlimited wants vs. limited resources. • The goods and services we want
exceed our ability to produce them. • Everyone faces scarcity. • Because of scarcity, consumers,
businesses, and government decision-makers are forced to make choices.
Rolling Stones
• http://www.youtube.com/watch?v=VNAmggD9s4A
• Rolling Stones
• http://www.youtube.com/watch?v=OagFIQMs1tw&feature=fvwrel
Economics is all about . . .using the resources you have to get the things you want
most.
What kinds of resources? What do you want?
do you have?1 1.2 2.3 3.4 4.5 5.6 6
Two Roads Diverged in a Wood…
• http://www.youtube.com/watch?v=DEMDQSatfTU
• Robert Frost
• What is the meaning of this Poem?
Scarcity necessitates choice.
Opportunity Cost is what you give up when you choose.
It’s the real cost.
Core Economic Principles
1. People make choices.2. All choices have costs.3. People respond to incentives in
predictable ways.4. Economic systems influence
incentives5. Consequences of choices lie in the
future.6. Voluntary exchange creates wealth.
• Consumers face scarcity and must make choices and incur opportunity costs. For example, a consumer with two hours of free time cannot go ice skating for two hours and see a movie. Whatever choice is made, the alternative given up is the opportunity cost.
• Businesses face scarcity and must make choices and incur opportunity costs. Suppose a grocery is deciding whether to add a café or a pharmacy. It only has space for one. It makes a choice; the one not selected is the opportunity cost.
• Governments face scarcity and must make choices and incur opportunity costs. For example, money spent on roads cannot be spent on education—or whatever would be the next best alternative.
• A tradeoff is not an all-or-nothing decision. For example, government could choose to trade off some money for roads to spend more on education.1
Cost-Benefit Analysis
What are the costs? What are the benefits?
(What benefits do you give up?) (What good things do you get?)
What 3 Basic Questions do all economies have to answer?
• What to produce?
• How to produce?
• For whom to produce?
Why are some nations rich and others poor?
Which of these nations do you think is the wealthiest?
A B C D E
What characteristics do wealthy nations have in
common?• Investments in human and physical capital• Economic freedom• Lower taxes• Less government regulation• Sound monetary policy• Protection of property rights• Incentives to save, invest, increase productivity• Competitive markets• Low inflation• Political stability