Unit 1 review Spring 2017

Scarcity Unlimited wants – Limited resources ALL of us suffer from scarcity Fundamental economic problem Because resources are scare, we must decide how to allocate Several ways to allocate : contest, first come first served, government decides Because of scarcity, people often have to make a decision about whether or not to get a good or service – they make this decision using RATIONAL DECISION MAKING – basically weighing the costs and the benefits!

Rational decision making The most effective way to decide what to do with scarce resources A production possibilities curve is a GRAPHICAL REPRESENTATION of opportunity cost and scarcity! It shows that we WANT 2 things but don’t have the resources to produce the maximum of both – Soooooo…. We have to find the opportunity cost of giving up some of one for more of another! Look!

Specialization Ok, so you get it… things are SCARCE Allocating resources can be difficult because many get left out! (poor, ill, elderly) So, businesses try to find a way to produce MORE with what they already have – they are trying to be more EFFICIENT! One was to be efficient is to SPECIALIZE – businesses and individuals do this BOTH parties gain as a result!

Economic systems Because there is scarcity and because the market does not serve all people, the government sometimes has to step in and help There are THREE types of governments: Command, Market, and Mixed Command : government makes all decisions – they decide how to allocated their scarce resources. For example, THEY decide whether to build houses or apartments, who will build them, how they will be built, and who gets to live in them. Market : people decide how to allocate resources in a way that benefits them best. Buyers and Sellers come together in the “market” and exchange goods and services. A market can be a store, EBay, craigslist, or a farmers market. People have the most freedom in this system – they decide what they want by casting “votes” using MONEY. Their money votes tells sellers if they like the product or not or if the price is too high or low. Mixed : a combination of both. Government hold some power over certain areas while the private sector controls others. The government provides some basic needs like education or healthcare. (Think SOCIALISM or COMMUNISM)

Our economy & the role of our government… Some things that we want or even need, the PRIVATE sector cannot supply, therefore, the government has to step in and do it (roads, parks, schools) Some people get left out (homeless, elderly, sick, disabled) and the government helps provide for them (shelters, food stamps, EBT, social security, Medicare and Medicaid) Another role of our government is to REGULATE and DEREGULATE – they either tighten or loosen controls on companies or businesses in order to control the market These regulations have a HUGE affect on all of us

productivity To be productive, you have to make more than you spend or OUTPUT > INPUT For example, I spend $4 on ingredients to bake a dozen cupcakes and sell them for $16 For an economy to GROW, we have to increase our output Output can be increased by being more efficient (specialization) OR by investing in more materials or improving technology Examples…