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What Is Scarcity NEED Satisfied by consuming a good or service Necessary for survival FOOD CLOTHING SHELTER Loreman
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The Economic Way of Thinking
Scarcity: The Basic Economic Problem
Loreman - 2014
What Is Scarcity
• People Have Lots of Desires• These are broken down in to two categories• WANTS• NEEDS
Loreman - 2014
What Is Scarcity
• NEED• Satisfied by consuming a good or service• Necessary for survival• FOOD• CLOTHING• SHELTER
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What Is Scarcity
• WANT• Satisfied by consuming a good or service• Satisfy a desire• Wants are UNLIMITED
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What Is Scarcity
• Society cannot satisfy all Needs and Wants• WHY?• We have limited resources.
• SCARCITY• The situation that exists because there are not enough resources to meet
human wants.
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What Is Scarcity
• ECONOMICS• The study of how people choose to use scarce resources• Examining how individuals, businesses, and government use their scarce
resources• Organizing, Analyzing, and Interpreting Data• Developing theories and economic laws.
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Principle 1: People Have Wants
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Principle 1: People Have Wants
• Choice is central to the use of scarce resource.• You have a CHOICE about everything.• You NEED FOOD……..you WANT Pizza.
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Principle 2: Scarcity Affects Everyone
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Principle 2: Scarcity Affects Everyone
• Because resources are limited, decisions have to be made about how to best use them.• As a result, scarcity affects which goods are made and which
services are provided.
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Principle 2: Scarcity Affects Everyone
• GOODS: physical objects that can be purchased.• SERVICES: Work that one person performs for payment• Ie. Sales clerk, teachers, nurses, etc.
• CONSUMER: A person who buys goods or services for personal use.• PRODUCER: A person who makes goods or provides services.
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Scarcity Leads to 3 Economic Questions
• Since resources are SCARCE, we use 3 Economic Questions to Allocate them:• What Will Be Produced• How Will It Be Produced• For Whom Will It Be Produced
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The Factors of Production
• To Understand how societies have answered the first two basic questions, economists have identified the FACTORS OF PRODUCTION
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The Factors of Production
• LAND• ALL NATURAL RESOURCES• Sunshine, water, wildlife, etc.
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The Factors of Production
• LABOR• All human time and effort that go in to making a product.
• CAPITAL• Resources made and used by people to produce goods and services.
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The Factors of Production
• ENTREPRENEURSHIP• Combination of vision, skill, and willingness to take risks that are
needed to create and run a new business.
Economic Choice Today: Opportunity
CostsCh 1, Section 2
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Making Choices
• What shapes Economic Choices?• Incentives: benefits offered to encourage people to act in
certain ways.• Utility: benefit or satisfaction gained from a product.• Economize: make decisions according to what you believe is
the best combination of cost and benefit.
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Motivations for Choice
• SELF INTEREST• Why do you make one decision over another?• IE…. You choose to go to a movie with one friend over staying at home to
listen to another friend on the phone talk about all of their problems….• SELF INTEREST……THAT’S WHY!
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NO FREE LUNCH
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NO FREE LUNCH
• Every choice involves costs.• Movie…have to listen to your friend complain the next time
you see them• Telephone Call….you missed the movie.
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Trade Offs and Opportunity Costs
• Choices ALWAYS involve costs. For every choice you make, you give something up. This is called a TRADEOFF
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Trade Offs and Opportunity Costs
• An Opportunity Cost is the value of the NEXT BEST alternative….or what you give up by making a different choice.
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Making a Trade-off
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Trade Offs and Opportunity Costs
• Cost Benefit Analysis: • The practice of examining the costs and the expected benefits of a
choice as an aid to decision making.
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Trade Offs and Opportunity Costs
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Trade Offs and Opportunity Costs
• Marginal Costs and Benefits• MARGINAL COSTS• The cost of using one additional unit of a good or service
• MARGINAL BENEFITS• The benefit of using one additional unit of a good or service
Analyzing Production Possibilities
Ch 1, Section 3
A Budget Line
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DVDs$20
Books$10
12
10
8
6
4
2
02 4 6 8 10 12 14
$120 Budget
Income = $120Pdvd = $20
= 6
Income = $120Pb = $10
= 12
Attainable
Unattainable
Quantity of Paperback Books
Qua
ntit
y of
DVD
s
Attainable & Unattainable Combos
Trade Offs & Opportunity CostsChoiceIncome Change
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• Economic Models • Graphical representations of complex economic activities.
• Production Possibilities Curve• A graphical illustration of the impact of scarcity of resources on the
production of goods and services.
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Production Possibilities Curve
• Basic Assumptions of a PPC• Resources are fixed• All resources are fully employed• Only two things can be produced• Technology is fixed.
Production Possibilities Chart
AN EFFICIENT ECONOMY MISSES NO OPPORTUNITIESIn this case….along the curve
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WHAT WE LEARN FROM PPCs
• LAW OF INCREASING OPPORTUNITY COSTS• Each additional unit costs more to make than the last.
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Changing Production Possibilities
• A SHIFT IN THE PPC• The PPC can shift outward if• Additional natural resources• Increased labor• New technology that makes production more efficient
Economic Growth
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The Economists ToolboxSec 4
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Working with Data
• Statistics• Numerical data or information
• Economic Models• Line Graphs• Bar Graphs• Pie Charts
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Microeconomics & Macroeconomics
• Microeconomics• The study of the behavior of the individual or the individual firm.
• Macroeconomics• The study of the behavior of the economy as a whole.
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Positive Economics & Normative Economics
• Positive Economics• Scientific Data to back up statements.
• Normative Economics• Value/Opinion based statements
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The Invisible Hand
• Concept by Adam Smith• The Wealth of Nations• Smith argues: • nations would be wealthier if allowed to engage in free trade.• People act in their own best self interest.
