Scarcity%20

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Scarcity the Science of Economics

• Do we ever have enough?
• List some things that are free

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• 1. Air (ok, I tried)

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Air in Beijing, China
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• 2. Sunshine

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• 3. Trash (in Brazil)

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• 4. Free Intellectual Property from
• Internet

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• I. TINSTAAFL
• - There is no such thing as a free lunch.
  Someone always has to pay.
• A) The Fundamental Economic Problem
• - Scarcity.
• B) Scarcity Exists because
• - societies do not have the resources to
  produce all the things people want.

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• II. Factors of Production or Economic
  Resources
• a) Land
• b) Labor
• c) Capital
• d) Entrepreneurs

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Land, Labor, Capital, Entrepreneurs
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Take a few seconds and talk to your neighbor.

• Which one of the 4 Factors of Production do you
  find the most important?
• How is your choice the most impactful to the
  economy?

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• III. Three Basic Economic Questions
• - To provide for peoples needs,societies need
  to
• make a choice about how to use its
  limited
• resources and must answer the
  following
• questions
• A) What to produce?
• B) How to produce?
• C) For whom to produce?
• Must have a Market
• IV. The Big Question What does economics mean?
• - Economics is the study of how societies
  attempt to satisfy seemingly unlimited
  human wants through careful use of
  relatively scarce resources

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• What is Macroeconomics
• -It deals with the economy as a whole, with
  basic subdivisions such as the government,
  households, and business sectors of the economy.
  Macro- economics deals with the forest, not the
  trees.

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• Full Employment
• 1. Of People 5
• unemployment

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• 2. Full Employment
• of P E (Plant and Equipment)
• 85 of PE Capacity Utilization Rate

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• VII Productive Efficiency
• - When products are being produced in the
  least costly way.

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Industrial Robots
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• VIII Allocative Efficiency
• Resources are being used to produce that
  combination of
• goods and services societies want most.

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PC vs. Typewriter
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• IX Full Production
• - Producing the right goods (allocative
  efficiency) in the (productive efficiency)
  right way.

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Take a few seconds and talk to your neighbor.

• Do we do a good job of producing the right goods
  in the right way?
• What would happen if we did not maintain an 85
  PE?
• Who is harmed most by technological advances?
• What can we do to prevent that harm?

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Resource Utilization the PPC

• I. What is the Production Possibilities Curve?
• - It is an economic model of choices
• II. Assumptions of the PPC
• a) Efficiency the eco. is operating at full
  employment full
• production
• b) Resources are fixed in quantity quality
• c) Technology is fixed
• d) The economy only produces two
• products.

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Guns and butter

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A Sample PPC
? z
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• III. Productive Efficiency the PPC
• A. To be on the curve, a society must
• achieve both productive
• allocative effciency.
• B. Points inside the curve are attainable,
  but represent
• economic inefficiency and unemployment.
• C. Points outside the curve are not
• attainable or only temporarily attainable
  (WWII).

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• IV. Law of Increasing Opportunity Costs
• A. What is the economic reason for the law of
  Increasing Opportunity costs?
• Factor Suitability.
• V. Allocative Efficiency the PPC
• A. Marginal Output.
• B. Marginal Benefit
• C. Utility
• D. Marginal Cost

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• The most optimal point on the curve below is
  where the marginal benefit the marginal cost.

Bean/Cheese Tacos
MC
10
Price
5
2
MB

2
3
1
Quantity (100,000s)
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• VI. Law of Diminishing Marginal Utility What
  does it mean?
• As you consume more and more of a product, you
  get less and less utility.
• VII. How can we grow the economy?
• 1. Expand the 4 Economic Resources
• 2. Use new and improved technology
• 3. International Trade
• 4. Present choices future possibilities

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Take a few seconds and talk to your neighbor.

• How does marginal benefits and marginal cost
  appear in your personal lives?
• What have you experienced, where diminishing
  marginal utility played a role in your decisions?

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The 3 Economic Systems

• Traditional Economy
• - Economic activity based on ritual, habit,
  custom.
• a. Strengths
• 1. everyone knows their role life
• is stable predictable
• 2. Little uncertainty over the what,
• how, for whom questions
• b. Weaknesses
• 1. discourages new ideas
• 2. lack of progress leads to lower
  standard of living.

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Amazon Shaman
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Tanzanian Men with Face Paint
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Quechuan Woman
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Tanzanian Men
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Face Painting Papua New Guinea
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• II. Command Economy
• - Central authority makes most economic
  decisions.
• a. Strengths
• 1. Can change direction drastically in
  short time.
• B. Weaknesses
• 1. Not designed to meet needs wants of
  individuals.
• 2. large bureaucracy for economic
  planning
• 3. Not flexible in dealing with
• everyday issues
• 4. Stifles new ideas

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Former USSR
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Soviet Peasants on Collective Farm
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• III. Market Economy
• - People firms act in own best
• interest to answer economic
• questions
• A. Strengths
• 1. Markets can adjust over time
• 2. Relatively small government
  interference
• 3. decentralized decision making
• 4. High variety/quality of products
• 5. High consumer satisfaction

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• B. Weaknesses
• 1. Main one is deciding for whom to
  produce
• 2. The young, sick, old have
  difficult time in pure market
• system.
• 3. Markets sometimes fail
• - Competition (or lack thereof)
• - resource mobility
• - availability of information

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USA Market Economy
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U.S. Businessman
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Trading floor of NYSE
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Outside the NYSE
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Take a few seconds and talk to your neighbors.

• How much responsibility should the government
  have?
• Should the government oversee healthcare, or
  should we leave that industry to private
  insurance companies?