RESOLVING SCARCITY

Resolving Scarcity Scarcity is the basic economic problem. Basically: What do we do with what we have?

Scarce There is not enough of it available.

Finite Resources An Economy has finite resources. Finite = Limited A resource: Something that is used to produce something else or be used immediately.

Finite Resources Resources are more plentiful in some countries than others.

Finite Resources Some countries simply have more resources than others. North America 1700

Greece Fish Olives People.

South Africa Diamonds Gold People

Finite Resources These resources are generally referred to as the four factors of production: Land Labour Capital Enterprise

Wants vs. Needs We can separate what we consume between what we want and what we need. Consume = To Use

Needs If needs cannot be satisfied eventually humans will cease to exist. Water and Food.

Infinite Wants Other than needs, humans have wants or desires. These wants are said to be infinite.

Scarcity Definition: The worlds resources are finite. The worlds wants are infinite.

What to do about it? Decisions have to be made as how to allocate those scarce resources. Allocate= To use something for a particular purpose. We allocate wheat to make bread.

What to do about it What to produce. It is impossible to produce all of the goods a country wants.

What to do about it How to Produce? The four factors of production can be organised in different ways to produce the same goods.

What to do about it For whom to produce. Should everybody get the same quantity of each good. Or quality………

The Simple Answer Goods are made for those who can pay. Goods are made for those willing to pay.

Example 1 Beer at a championship sports event. High Prices.

Example 2 Saltwater on a beach in somalia. Annual Income: 600 USD / Year. Free of charge.

Opportunity Cost It is the benefit lost from the next best alternative.

Choice and opportunity cost Individuals have to choose how to spend their limited budgets. Firms also have to choose how to spend their money, for example advertising or a new machine. Governments must also decide how to spend money earned from taxes.

I can use my money to buy a bicycle or a computer. If I buy the bicycle, what is the opportunity cost?