Scarcity and the Science of Economics What is Economics?

The Fundamental Economic Problem The fundamental economic problem facing all societies is that of scarcity. Scarcity – the condition that results from society not having enough resources to produce all the things people would like to have. Scarcity affects almost every decision we make. Condition that results from unlimited wants, with limited resources Scarcity is where the study of economics comes from. Economics – the study of how people try to satisfy what appears to be seemingly unlimited wants through the careful use of relatively scarce resources. Economics is the study of how individuals, businesses and governments make choices when faced with a limited supply of resources. Scarcity forces us to make decisions and choices based on what is most important to us. Scarcity also does not mean there is a shortage of a particular resource. There may be a shortage of backrow seats in a classroom because the demand for those seats in a specific class may be higher than the supply of those seats, which causes a shortage. This may not be the case in every class, or after getting used to a seat, y’all might decide you like sitting in “your spot.” Scarcity on the other hand is a permanent circumstance, where there is a limited number of a resource in an area or even on the planet at a given time.

What resource is pictured above What resource is pictured above? List out all the things you can think of that can be produced from this resource.

Needs and Wants Need – a basic requirement for survival and includes food, clothing, and shelter. Want – a way of expressing a need. It can also be something we desire but is not necessary for survival. You “need” food but you “want” pizza. You “need” shelter but you “want” a house. Goods are physical objects that someone produces Food, cell phones, cars, shoes, clothes, etc… Services are actions or activities that one person performs for another. Medical care, lawn care, food service, haircuts, etc… The study of economics begins with the face that people can’t have everything they need and want. Need – a basic requirement for survival and includes food, clothing, and shelter. Want – a way of expressing a need. It can also be something we desire but is not necessary for survival. You “need” food but you “want” pizza. You “need” shelter but you “want” a house. People try to satisfy their unlimited needs and wants with goods and services: Goods are physical objects that someone produces Food, cell phones, cars, shoes, clothes, etc… Services are actions or activities that one person performs for another. Medical care, lawn care, food service, haircuts, etc… If you go out to eat, perhaps afterward you want to go bowling, watch a movie at the theatre, go shopping, or any number of other things that involve

TINSTAAFL There Is No Such Thing As A Free Lunch Because resources are limited, everything we do has a cost. Example: You may think you are getting a free lunch when you use a “buy one, get one free” coupon. However: someone paid the farmer for the food, the truck driver for delivering it, the chef for preparing it and the server for serving it. How does the business recover the cost? They usually have the prices hidden in other items it sells. Example: they may raise prices later, they may raise the price of the drinks, etc. NOTHING IS FREE!

The Factors of Production Resources required to produce the things we would like to have, are land, capital, labor, and entrepreneurs. Entrepreneurs – a risk-taker in search of profits who organizes the factors of production. Any business owner big or small By producing new goods and services and hiring workers, they are the driving force behind the economy. Land – refers to the “gift of nature,” or natural resources. Includes land for farming, oil, iron, coal, water, forests, etc… Labor – people that with all their efforts, abilities, and skills Includes doctors who provide medical care, plumbers who install pipe, farmers who till the land, an artist who paints, a mechanic who fixes cars, etc… Capital – any human made resource used to produce other goods and services. Ex: a bulldozer is a capital good used in construction. It also was built in a factory, which makes it the result of earlier production. How are scarce resources turned into goods and services? Entrepreneurs play a central role by organizing land, labor and capital in order to produce something new.

Capital Physical Capital (Capital goods)-heavy machinery used on the automobile assembly line, car used to deliver pizza Human Capital- the knowledge and skills a worker gains through education and experience. Need both for production of goods and services. A pilot needs training to know how to fly but also an instrument panel to make sure the who ride goes smoothly

There was a time when people had to wash dished by hand because dishwashers and other household appliances didn’t exist. Here is a table showing approximate time spent washing dishes with and without a dishwasher over different periods of time. What resource becomes less scarce as a result of using a dishwasher to wash dishes every day?

Effectiveness of Capital Capital can save people time, energy and money. 3 benefits: 1. Extra time 2. More knowledge 3. More productivity These benefits Just like in a home, businesses can benefit by purchasing capital in order to maximize production and make quality products: Imagine if the heavy machines that are used to make cars didn’t exist and they all had to be made by hand. That would exponentially increase the time and therefore price that each vehicle would cost to the average person. Because skilled workers can use machines on an innovation like the assembly line and therefore make them easier, and more efficiently, it saves many hours of labor, a lot of energy and it saves everyone money.

Production The process of creating goods and services. Everything we produce requires all of the factors of production. Ex: The dry erase boards, desks, and audiovisual equipment used in schools are capital goods. Labor is in the form of services supplied by teachers, administrators, and other employees. Land is the iron ore, granite, and timber used to make the building and desks, as well as the land where the school is located. Entrepreneurs are needed to organize the other three factors and make sure that everything gets done.

Three Basic Questions Because we live in a world of limited resources, we have to make wise economic choices. WHAT to Produce A society cannot have everything its people want, so decision must be made for what is best for all. Should a society direct most of its resources to the production of military equipment or to other items such as food, clothing, or housing? HOW to Produce Should factory owners use mass production methods that that require a lot of equipment and few workers, or should they use less equipment and more workers? FOR WHOM to Produce If society decides to produce housing, should it be distributed to workers, professional people, or government employees? These questions are not easy for any society to answer but they must be answered as long as there are not enough resources to satisfy people’s seemingly unlimited wants.

This illustration shows two different approaches to the question of how to combine the factors of production. Which approach is more efficient? Explain.

The Scope of Economics Economics if the study of human efforts to satisfy what appear to be unlimited and competing wants through the careful use of relatively scarce resources. We study economics in social studies because it deals with the behavior of people as they deal with this basic issue.

Questions Give two examples of needs and two examples of wants What is the difference between scarcity and shortage? Why do entrepreneurs take the risk to start or expand a business? What are the factors of production? If increasing physical capital increases productivity, why would a company not buy newer, faster computers for all its workers every year?