Chapter 1: The economic Way of thinking. Lesson 1: Scarcity :The Basic Economic Problem Objectives: Explain how the economic definition of scarcity differs from the common definition . 2. Understand why scarcity affects everyone . 3. Learn three economic questions that societies face because of scarcity. 4. Describe the four factors of production and their uses. 1. What are Needs? Some things that people desire, like a house or an apartment are more important than other things, like a flat screen television. Needs are things such as food, clothing, and shelter, that are necessary for survival. Consumers prioritize wants based on their preferences, financial capacity and values. Human needs things that are necessary for survival. What are Wants ? Wants are desires that can be satisfied by consuming a good or service. Consumers have many economic wants. Human wants things that we can live without, but like to have. Scarcity People always want more no matter how much they have already. In fact, wants are unlimited, but the resources available to satisfy them are limited. The result of this difference is scarcity. • Scarcity: The situation that exists when there are not enough resources to satisfy human wants. •Scarcity arises due to the imbalance between unlimited wants and limited resources. Scarcity exists when there are not enough resources to satisfy human wants. Scarcity •Scarcity necessitates making choices, prioritizing needs, wants and allocating resources efficiently. •Scarcity is not a temporary shortage of some desired thing. Rather, it is a fundamental and ongoing tension that confronts individuals, business, governments, and societies, so it is a universal Challenge. •Indeed, it is so basic to human experience that a social science has developed to understand and explain it. This social science is called Economics . Definition of Economics Economics study of how people choose to use scarce resources to satisfy their wants . Economics is a social science that studies how individuals, societies, and governments allocate to satisfy unlimited wants. Economic thinking helps us understanding how scarcity influences decision-making in various concept. Economics is the study of how individuals and societies satisfy their unlimited wants with limited resources. Economics involves 1. Examining how individuals, businesses, governments, and societies choose to use scarce resources to satisfy their wants 2. Organizing, analyzing, and interpreting data about those economic behaviors 3. Developing theories and economic laws that explain how the economy works and to predict what might happen in the future. People Have Wants • Individuals have diverse desires and preferences, leading the need for choices. • Choices involve selecting among various options whether they are necessities or luxury example food choices. • Individuals choose home-cooked meals, fast food or dining based on their wants and circumstances. • Another example: consider the choice you make about the clothing you wear. PRINCIPLE 1 People Have Wants Wants are not only unlimited, they also are ever changing. Twenty-five years ago, for example, few people owned a personal computer. Today, however, few people can imagine life without computers and computer-related technology. PRINCIPLE 2 Scarcity Affects Everyone Because wants are unlimited and resources are scarce, choices have to be made about how best to use these resources. Scarcity, then, affects which goods are made and what services are provided Goods: Are physical objects that can be purchased. Services: Are work that one person performs for the other for a payment. Scarcity affects everyone Scarcity affects the choices of both the consumer and the producer. Consumer: A person who buys good or services for personal use. Producer: A person who makes goods or provide services. Question : Identify five wants you have right now .Describe how scarcity affects your efforts to meet these wants. In general, wants could include things like a new smartphone, a vacation, a bigger house, a luxury car, and designer clothing. Scarcity affects these wants by limiting the availability of resources needed to fulfill them. For example, there's a finite amount of money, time, and resources, so choices have to be made about which wants to prioritize and fulfill. Scarcity Leads to Three Fundamental Economic Questions Every society faces three essential economic questions: What to produce, How to produce and for Whom to produce? 1. What will be produced? To answer the first fundamental economic question, a society must decide the mix of good and services it will produce. Will it produce mainly food, or will it also produce automobiles, televisions, computers furniture, and shoes? The goods and services a society choose to produce depend, in part, on the natural resources it possesses. For example, a country that does not posses oil its unlikely to choose to produce petroleum products. Resources however, do not completely control what a country produces. Japan, for example, does not posses large amounts of iron ore needed to make steel. Yet, japan is a leading producer of automobiles ,who's construction requires a great deal of steel. Some countries, including united states, resolve the issue of what to produce by allowing consumers and producers to decide. While, Cuba and North Korea, the consumer plays little or no part in answering this question. Rather the government decides what to produce. 1. What will be Produced? • This first fundamental economic question involves not only what to produce but also how much to produce? A country at war for example, will choose to produce more weapons than it would during peace time. • Societies consider factors like available resources, technological capabilities, and consumers preferences. • Natural resources availability impacts production choices. E.g oil-producing countries prioritize petroleum-based product. • Societies makes choices considering both resource limitation and potential benefits. 2. How will it be Produced? Once a society has decided what to produce, it must then decide how these goods or services will be produced. Answering this second question involves using scarce resources in the most efficient way to satisfy society's wants. • Societies aim to use resources efficiently to maximize production output. • Different production methods, such as labor-intensive or capital-intensive, are chosen based on available skills and resources. • Technology influences production methods, allowing for innovation and increased efficiency. 3- For whom it will be produced? The third fundamental economic question involves how goods and services are distributed among people society. This actually involves two questions. 1- Exactly how much should people get? and 2- How should their share be delivered to them? Should everyone get an equal share of the goods or services? Or should a persons share be determined by how much he or she is willing to pay? Once the question of how much has been decided, societies must then decide how to distribute goods and services among their population. • To do this, it will have a balancing between fairness and efficiency, societies design distribution systems ,which include road and rail systems, seaports, airports, trucks, trains, ships, airplanes, computer networksanything that helps move goods and services from producers to consumers in an efficient manner. • Government often play a role regulating ensuring equitable distribution. Question Why does the basic problem of scarcity lead societies to ask three fundamental economic questions? Scarcity leads societies to ask the three fundamental economic questions (what to produce, how to produce, and for whom to produce) because resources are limited, but wants are unlimited. This necessitates efficient allocation and utilization of resources to satisfy as many wants as possible. The Factors Of Production • To understand how societies answer the first two economic questions –what to produce and how to produce it, economists have identified the factors of production, or the economic resources needed to produce goods and services. They divide the factors of production into four broad categories: land, labor, capital and entrepreneurship. All these factors have one thing in common, their supplies are limited needing for a careful allocation. • Factor of production work together to drive economic activity and resource utilization. 1- Land • In economic terms, land includes all the natural resources found on or under the ground that are used to produce goods and services. Water, forests, and all kind of wildlife belong in the category of land. Also, minerals, gas, and oil are other examples of land. • Land’s role in production, including agriculture, mining, and energy extraction. 2- Labor • Labor encompasses all human effort and talent dedicated to production. • Varied role of labor, from physical work to skilled services. • Labor then, it is not only the work done by garbage collectors, factory workers, and construction workers. It also includes the work of architects, teachers, doctors, sales clerks and government officials. 3- Capital • Capital refers to physical resources like machinery, factories, and infrastructure (used to produce and distribute good and services). • The importance of the capital in enhancing productivity and economic growth. • Capital is sometimes called physical capital, or real capital. 3- Capital • While businesses invest in real capital ,workers invest in human capital. Human capital is the knowledge and skills gained through experience. • Human capital includes such things as a college degree or good job training .When workers posses more human capital, they are more productive. 4- Entrepreneurship • Entrepreneurship involves innovation, risk-taking, and resource coordination. • Entrepreneurship involves combining vision, innovation, and risk-taking to create new businesses and opportunities(role). • Entrepreneurs drive economic development by creating new product, services and businesses. • Entrepreneurs identify market gaps and develop new products or services to meet consumer needs (role). Mark Zukerberg Mark Cuban Bill Gates Question Think of a product that you recently purchased. How do you think the four factors of production were used to create this product? Let’s choose the smartphone. The four factors of production were used as follows: - Land: Resources like minerals, metals, and energy sources were extracted from the earth. - Labor: Workers were involved in assembling and manufacturing the smartphone. - Capital: Machinery, tools, and technology were used in the production process. - Entrepreneurship: The idea for the smartphone, the design, and the coordination of production and distribution all required entrepreneurial efforts. 2- What is the difference between needs and wants? Explain how a need may also be a want. Needs are basic necessities required for survival, such as food, clothing, and shelter. Wants, on the other hand, are desires that go beyond basic needs. Sometimes, a need can also be a want. For instance, while you need food to survive, your want might be for a specific type of cuisine. 3- How does scarcity affect consumers? Producers? Scarcity affects consumers by necessitating choices about which goods and services to prioritize due to limited resources. For producers, scarcity means they must decide what to produce and how to allocate resources efficiently to meet consumer demands. 4- What services that individuals or businesses provide do you use every day ? Services like transportation (ride-sharing), communication (internet providers), food (restaurants), and healthcare (pharmacies) are commonly used by individuals or businesses on a daily basis. 5- Describe how the owners of a computer repair store might use the four factors of production to run their business. Four Factors of Production for a Computer Repair Store: - Land: The physical location of the store. - Labor: Technicians and support staff. - Capital: Tools, diagnostic equipment, computers, and repair parts. - Entrepreneurship: The business idea, management, and coordination of repair services. 7- Drawing Conclusions Many high schools throughout the United States have faced a serious shortage of math and science teachers. Many prospective teachers choose to go into business and industry because of higher salaries. In some communities, businesses are “loaning” employees who want to teach part-time to schools to fill the math and science teacher gap. Does this scenario illustrate scarcity? Why or why not? Yes, this scenario illustrates scarcity. The shortage of teachers in this case is due to the limited availability of qualified math and science educators, highlighting the scarcity of skilled human resources in specific fields. 8- Applying Economic Concepts Consider the following entrepreneurs: Lucy, who runs an organic farm, and Ron, a sports superstar who owns several restaurants. Describe how they may have used entrepreneurship to establish and run their businesses. Lucy used entrepreneurship to start her organic farm by identifying a market for organic products and organizing resources like land, seeds, and labor. Ron employed entrepreneurship by leveraging his sports fame to establish restaurants, using his brand recognition and management skills. 9- Writing About Economics Select a 10-minute period of time in your day-to-day life—when you are in the cafeteria at lunchtime, for example. Analyze how scarcity affects your activities during this time period. Write your analysis in a paragraph During lunchtime in the cafeteria, scarcity affects your activities as you must choose what to eat and how much due to limited time and money. You might have to prioritize between different food options and allocate your resources wisely. 10- Challenge At one time or another, you have probably made a choice about how to use your scarce resources that you later regretted. For example, you may have purchased a music download instead of going to the movies. What led you to your choice? What did you learn later that might have led you to a different choice? Choices can be influenced by factors like personal preferences, peer pressure, and information availability. Regret might occur when the chosen option doesn't align with long-term satisfaction. Learning from this, you might research more before making a choice or consider the potential long-term consequences.
