Chapter 1 scarcity and decision making February 2013

WANTS  WANTS are the need or desire for goods and/or services  Goods are visible and touchable (bread, DVDs, clothes)  Services are invisible and untouchable (airplane trips, concerts, a math lesson)

NEEDS Physical Wants are those wants or needs that are necessary to sustain human life.  Includes the need for air, water, food, clothing and shelter  These are the most pressing or urgent of all human wants  Physical wants are often referred to as NEEDS

NEEDS (physical wants) Physical Wants  The ways in which we satisfy these essential wants is significantly influenced by both climate and society  In a hot southern place, people may be able to do without clothing, in Canada the climate makes it necessary to wear clothing

NEEDS (physical wants) Physical Wants  We are influenced by dress codes (in most large offices people wear business suits)  What we eat is also influenced by social customs (in other societies, house or monkey meat is eaten as much as beef is in our society)

WANTS  Psychological Wants are wants for those things that are not essential to sustain life.  This includes wants for exotic food, fashionable clothes, an air conditioned home.

WANTS  In a sophisticated society like our own, the distinction between a physical want and a psychological want is not always clear It is not essential for business people to wear suits to keep out the cold In our society, social pressure is such that people tend to dress in a similar way  The physical want, the need for clothing for warmth, has become partially a psychological want, the need to fit into society

RESOURCES Resources are those things used to produce goods and services.  We will consider three main types of resources:  Human resources  Capital resources  Natural resources

RESOURCES  Human resources are the skills and efforts people use in production  Capital resources are factories and machinery  Natural resources are land and forests

SCARCITY  Scarcity is the term for the fact that there is a limited amount of resources that can be used to produce a limited amount of goods and services to meet unlimited human wants.  Human wants > resources = scarcity

SCARCITY  Generally in our everyday language, we use the word “scarcity” to mean shortage  Economists use the word scarcity in a special way, scarcity is always related to our wants and our resources.

SCARCITY  Whenever our wants are greater than our resources, there is scarcity.  Because our wants are greater than our resources we cannot have everything that we want, so we have to make decisions among various choices

OPPORTUNITY COST Opportunity cost is the benefit lost of doing one thing rather than another. For example: If you decide to do homework rather than watch TV, than the opportunity cost of homework is the opportunity lost of enjoying TV.

OPPORTUNITY COST  When we make decisions, we are choosing among the alternatives open to us We select the opportunity of one choice, but we lose the opportunity of another The opportunity cost is the opportunity lost

OPPORTUNITY COST  Since we are continually forced to make choices, we are continually weighing the opportunity cost The is an opportunity cost for every single purchase made

DECISION MAKING  Households are continually faced with the need to make decisions  Since the household has limited resources, it must continually choose among all its wants

GOODS AND SERVICES  Goods are those concrete, visible things that satisfy human wants, that can be touched, and that last a period of time Goods include essentials such as bread and non-essentials such as diamonds

GOODS AND SERVICES  Services include all those items that satisfy wants, that cannot be touched or seen, that are consumed at the time of their production

GOODS AND SERVICES  Suppose we have to choose between buying a CD (a good) and going to a concert (a service) CD: you can see and touch and play many times Concert: cannot be touched and does not last beyond the time of its production

GOODS AND SERVICES  The service sector is a huge part of our economy, about 3 out of 4 Canadians are employed in the service sector of our economy. Includes personal financial planning, medical services, school

ECONOMICS IS… Economics is the study of human activity involved in using scarce resources to satisfy wants  The study of economics arises out of scarcity and scarcity is the most important concern in economics  In a society, scarce resources include human resources, natural resources and capital resources  Wants include the need for services as well as goods

ECONOMICS IS…  Because our wants are relatively unlimited, and our resources are limited, we have to find ways of dealing with the problem of scarcity.

 There are three factors that have led to the need for economics: 1.Humans need resources to survive. 2.Humans work together to collect these resources. 3. The resources that we work to acquire are limited; our wants are unlimited. (scarcity)

1. Humans need resources to survive.  We need resources such as food, water, shelter to survive.  We need to produce material items in order to increase our standard of living and progress  Without basic necessities and the production of goods the human race would not move forward.

2. Humans work together to collect these resources.  From the beginning of our known existence we have lived in groups and have cooperated in order to get the things that we need to live.  As human we have always lived in a society because it is more efficient to collect the resources that we need.

3. The resources that we work to acquire are limited; our wants are unlimited. (scarcity)  Scarcity is a part of human existence.  Scarcity was first identified by an economist named Thomas Malthus ( ).  He predicted that because the human population would increase exponentially there would be a constant struggle for food, supplies, land  Modern technology has allowed us to produce food more efficiently so we have enough food available  However we seem to have an innate need for more and more material goods, which cost more and more money, and we have a limited amount of time to work for what we want.  Therefore goods are still scarce.

 Because goods and services are scarce, an important part of economics is deciding how to divide up the limited amount of resources.  Economists rarely agree on the best way to distribute wealth!

How should wealth be distributed?  Should those people that work the hardest get the most?  Should the strongest individuals get the most resources?  Should the most helpless?  What would happen if we all had everything we wanted? We would not be motivated to work, nor would we progress.

Micro and Macro economics MACROeconomics  Economics can be studied on a national level; how does a country distribute its resources among its citizens? How much is spent on education? Medical care? Highways?

Micro and Macro economics MICROeconomics  Economics can be studied on a much smaller scale; how does a family of four with an income of $ a year distribute its resources among the family? How much is spent on clothing? Food? Entertainment?

Micro and Macro economics  Economics can also be studied on a global scale; how much in wages should a multi-national company such as Nike pay to an Indonesian worker?  How many trees should Nova Scotia allow a Swedish company to harvest?

 Groups of 4

 Your group has been given a specific amount of candy.  You may divide up the candy as you wish, and eat the candy after you complete several tasks.  Before you are allowed to eat the candy you must:

Before you are allowed to eat the candy you must:  Read through the instructions carefully.  Decide how you will divide up the candy amongst the group.  Appoint one (or two, or all) of the group members to write up a report to be handed in at the end of class.  This report must contain: All of the group members’ names Answer to the questions in paragraph form

 This report must contain: All of the group members’ names Answer to the questions in paragraph form 1.Assume your group is a micro-society. Identify the members of your society and the resources in your society. 2.What is the major economic dilemma in your society? 3.How did your group resolve this dilemma?

 Appoint one (or more) of the group members to present your written report to the class.  After you have presented your report to the class and passed in your written work you may enjoy your candy.

 Perhaps you will reward the writer and the presenter with extra candy.  Perhaps you will try to break up the candy evenly by breaking it.  Perhaps the most popular person in the group will be rewarded with the most candy.

DOES GOVERNMENT PLAY TOO LARGE A ROLE IN THE ECONOMY? One of the questions that is debated constantly by Canadians is whether there is too much government involvement in the Canadian economy. What do you think? Answer in a paragraph.