scarcity Carol Mathias

Scarcity is the problem of economics. Scarcity occurs because people’s wants and needs are unlimited, and the resources needed to produce goods and services are limited.

Things that are scarce: Money is scarce! (no kidding!)

Things that are scarce: There is only so much oil in the world.

Things that are scarce: In Japan, 96% of all the land in the country is being used. Land is scarce. Prices for renting space in the Ginza District is $6,000 per square foot.

Things that are scarce: Elephants are on the critical list of endangered species. Poachers kill them for the ivory, Asian medicines and aphrodisiacs.

Economics The social science that deals with how society allocates its scarce resources among its unlimited wants and needs.

Economics Economists advise individuals or societies about choosing which needs to satisfy and how much of our resources we need to satisfy those needs.

Resources The factors of production: –Natural resources –Human resources –Capital resources –entrepreneurship

There are two branches in Economics: Macroeconomics Microeconomics

Macroeconomics: The branch of economics that examines the behavior of the whole economy at once.

Macroeconomics Alan Greenspan is a macroeconomist. His position at the Federal Reserve calls for him to determine interest rates and control the money supply for the economy.

Microeconomics Microeconomics is the branch of economics that examines the choices and interaction of individuals concerning one product, firm or industry.

Microeconomics Microeconomists would be interested in why people prefer Coke over Pepsi, or how to make more money on the Stock Market.

Economists seek answers to: What to produce? How to produce? For whom are they producing for? The Three Basic Economic Questions!

Economists…. Try to answer the basic economic questions. Evaluate the options for production. Analyze the potential opportunity costs (trade-offs) and opportunity benefits of any decision.

Economists use theories to explain their ideas A theory is a model or a simplified description of reality. – EXAMPLE OF A THEORY: – Wage Differential Theory – The Glass Ceiling

The Economic Way of Thinking People gain from voluntary trade. Everything has a cost. People choose for good reasons. Incentives matter. People create economic systems to influence choices and incentives. The value of goods or services is affected by people’s choices.

The Economic Way of Thinking: Economic thinking is marginal thinking. Economic actions create secondary effects. The test of a theory is its ability to predict.

Lesson Summary The essence of economics is logic.

Steps of Decision Making Grids Identify the problem. List alternatives for answering the problem. List criteria – what you want to get out of your decision. Rank criteria with alternatives. Make the decision.

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Exchange If consumers buy more Motorola phones over Sprint, what does that tell Motorola?

Exchange Producers gain information through a process called an EXCHANGE – it which producers and consumers agree to provide one type of item for another.

Exchange takes one of three forms: Barter Money Credit

Money has three functions Standardized item that is generally traded for goods and services. A measure of value that allows both producers and consumers to determine and express worth. A store of value that can be saved and used to purchase at a later date.

Money has VALUE Value is determined by a product’s UTILITY. –Usefulness to a person.

MOST items have DMU Diminished Marginal Utility – usefulness decreases as it is used more and more.

Other Terms to know: Goods: Physical objects that are purchased. Services – actions or activities done for a fee. Capital Resource – capital goods and money. Capital Goods – buildings, machinery, tools, etc

Terms to Know Consumer Goods – what people buy. Productivity – level of output that results from a level of input. Efficiency – having the least possible input and get the greatest output.

Terms to Know Credit – Third form of exchange. People can use item while paying for it. Self-sufficiency – people fulfill needs without outside assistance.

Terms to Know Interdependence – one area can influence the economy in another sector or the world.