Scarcity & the Science of Economics Do we ever have enough? List some things that are free:

1. Air (ok, I tried)

Air in Beijing, China

2. Sunshine

3. Trash (in Brazil)

4. Free Intellectual Property from Internet

I. TINSTAAFL: - There is no such thing as a free lunch. Someone always has to pay. A) The Fundamental Economic Problem: - Scarcity. B) Scarcity Exists because: - societies do not have the resources to produce all the things people want.

II. Factors of Production or Economic Resources a) Land b) Labor c) Capital d) Entrepreneurs

Land, Labor, Capital, & Entrepreneurs

III. Three Basic Economic Questions: - To provide for people’s needs,societies need to make a choice about how to use its limited resources and must answer the following questions A) What to produce? B) How to produce? C. For whom to produce? IV. The Big Question: What does economics mean? - Economics is the study of how societies attempt to satisfy seemingly unlimited human wants through careful use of relatively scarce resources

What is Macroeconomics: -It deals with the economy as a whole, with basic subdivisions such as the government, households, and business sectors of the economy. Macro- economics deals with “the forest, not the trees.”

Full Employment: 1. Of People = 5% unemployment

2. Full Employment of P & E =85%

VII: Productive Efficiency: - When products are being produced in the least costly way.

Industrial Robots

VIII: Allocative Efficiency: Resources are being used to produce that combination of goods and services societies want most.

PC vs. Typewriter

IX: Full Production: - Producing the “right goods” (allocative efficiency) in the (productive efficiency) “right way.”

Resource Utilization & the PPC I. What is the Production Possibilities Curve? - It is an economic model of choices II. Assumptions of the PPC: a) Efficiency – the eco. is operating at full employment & full production b) Resources are fixed in quantity & quality c) Technology is fixed d) The economy only produces two products.

Guns and butter

A Sample PPC ● z

III. Productive Efficiency & the PPC: A. To be on the curve, a society must achieve both productive & allocative efficiency. B. Points inside the curve are attainable, but represent economic inefficiency and unemployment. C. Points outside the curve are not attainable.

IV. Law of Increasing Opportunity Costs: A. What is the economic reason for the law of Increasing Opportunity costs? Factor Suitability. V. Allocative Efficiency & the PPC: A. Marginal Output: - The extra output from adding one more input. B. Marginal Benefit: - The extra utility from consuming one more output.

IV. Law of Increasing Opportunity C. Utility: - Satisfaction. D. Marginal Cost: - Extra Cost of producing one more output.

The most optimal point on the curve below is where the marginal benefit = the marginal cost. Bean & Cheese Tacos MC $10 Price 5 2 MB 3 1 2 Quantity (100,000’s)

VI. Law of Diminishing Marginal Utility: What does it mean? As you consume more and more of a product, you get less and less utility. VII. How can we grow the economy? 1. Use new and improved technology 2. Expand the 4 Economic Resources 3. International Trade

The 3 Economic Systems: Traditional Economy: - Economic activity based on ritual, habit, & custom. a. Strengths: 1. everyone knows their role & life is stable & predictable 2. Little uncertainty over the what, how, & for whom questions b. Weaknesses: 1. discourages new ideas 2. lack of progress leads to lower standard of living.

Amazon Shaman

Tanzanian Men with Face Paint

Quechuan Woman

Tanzanian Men

Face Painting – Papua New Guinea

II. Command Economy: - Central authority makes most economic decisions. a. Strengths: 1. Can change direction drastically in short time. B. Weaknesses: 1. Not designed to meet needs & wants of individuals. 2. large bureaucracy for economic planning 3. Not flexible in dealing with everyday issues 4. Stifles new ideas

Former USSR

Soviet Peasants on Collective Farm

III. Market Economy: - People & firms act in own best interest to answer economic questions A. Strengths: 1. Markets can adjust over time 2. Relatively small government interference 3. decentralized decision making 4. High variety/quality of products 5. High consumer satisfaction

1. Main one is deciding for whom to produce B. Weaknesses: 1. Main one is deciding for whom to produce 2. The young, sick, & old have difficult time in pure market system. 3. Markets sometimes fail - Competition (or lack thereof) - resource mobility - availability of information

USA – Market Economy

U.S. Businessman

Trading floor of NYSE

Outside the NYSE