scarcity
Carol Mathias
Scarcity is the problem of economics.
• Scarcity occurs
because people’s
wants and needs
are unlimited, and
the resources
needed to produce
goods and
services are
limited.
Things that are scarce:
• Money is scarce!
(no kidding!)
Things that are scarce:
• There is only so
much oil in the
world.
Things that are scarce:
• In Japan, 96% of
all the land in the
country is being
used. Land is
scarce. Prices for
renting space in
the Ginza District
is $6,000 per
square foot.
Things that are scarce:
• Elephants are on
the critical list of
endangered
species.
Poachers kill them
for the ivory, Asian
medicines and
aphrodisiacs.
Economics
• The social science that deals with how
society allocates its scarce resources
among its unlimited wants and needs.
Economics
• Economists advise
individuals or
societies about
choosing which
needs to satisfy
and how much of
our resources we
need to satisfy
those needs.
Resources
• The factors of
production:
–
–
–
–
Natural resources
Human resources
Capital resources
entrepreneurship
There are two branches in
Economics:
• Macroeconomics
• Microeconomics
Macroeconomics:
• The branch of
economics that
examines the
behavior of the
whole economy at
once.
Macroeconomics
• Alan Greenspan is
a macroeconomist.
His position at the
Federal Reserve
calls for him to
determine interest
rates and control
the money supply
for the economy.
Microeconomics
• Microeconomics is
the branch of
economics that
examines the
choices and
interaction of
individuals
concerning one
product, firm or
industry.
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Microeconomics
• Microeconomists
would be
interested in why
people prefer Coke
over Pepsi, or how
to make more
money on the
Stock Market.
Economists seek answers to:
• What to produce?
• How to produce?
• For whom are they producing for?
The Three Basic Economic
Questions!
Economists….
• Try to answer the basic economic
questions.
• Evaluate the options for production.
• Analyze the potential opportunity
costs (trade-offs) and opportunity
benefits of any decision.
Economists use theories to
explain their ideas
• A theory is a model
or a simplified
description of
reality.
– EXAMPLE OF A
THEORY:
– Wage Differential
Theory – The Glass
Ceiling
The Economic Way of Thinking
• People gain from
voluntary trade.
• Everything has a
cost.
• People choose for
good reasons.
• Incentives matter.
• People create
economic systems
to influence
choices and
incentives.
• The value of goods
or services is
affected by
people’s choices.
The Economic Way of Thinking:
• Economic thinking
is marginal
thinking.
• Economic actions
create secondary
effects.
• The test of a
theory is its ability
to predict.
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Lesson Summary
• The essence
of economics
is logic.
Steps of Decision Making Grids
• Identify the problem.
• List alternatives for answering the
problem.
• List criteria – what you want to get
out of your decision.
• Rank criteria with alternatives.
• Make the decision.
`
Exchange
• If consumers buy
more Motorola
phones over
Sprint, what does
that tell Motorola?
Exchange
• Producers gain
information
through a process
called an
EXCHANGE – it
which producers
and consumers
agree to provide
one type of item
for another.
Exchange takes one of three
forms:
• Barter
• Money
• Credit
Money has three functions
• Standardized item that is generally
traded for goods and services.
• A measure of value that allows both
producers and consumers to
determine and express worth.
• A store of value that can be saved
and used to purchase at a later date.
Money has VALUE
• Value is
determined
by a
product’s
UTILITY.
– Usefulness to
a person.
MOST items have DMU
• Diminished
Marginal Utility –
usefulness
decreases as it is
used more and
more.
Other Terms to know:
• Goods: Physical
objects that are
purchased.
• Services – actions or
activities done for a
fee.
• Capital Resource –
capital goods and
money.
• Capital Goods –
buildings, machinery,
tools, etc
Terms to Know
• Consumer Goods –
what people buy.
• Productivity – level
of output that
results from a level
of input.
• Efficiency – having
the least possible
input and get the
greatest output.
Terms to Know
• Credit – Third form
of exchange.
People can use
item while paying
for it.
• Self-sufficiency –
people fulfill needs
without outside
assistance.
Terms to Know
• Interdependence –
one area can
influence the
economy in
another sector or
the world.