Scarcity, Choice and Economic Reasoning The Right Start.

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Presentation transcript:

Scarcity, Choice and Economic Reasoning The Right Start

The Unexpected Pleasure of Teaching Economics  Economics is the study of how humans choose to use scarce resources to achieve personal and social goals.

Why Do We Choose?  Scarcity: a condition of being scarce, not common, not plentiful. Webster’s  Scarcity: a situation where human wants are greater than what limited resources can satisfy. Economics textbook  Scarcity: a condition that exists when a resource has at least two valuable uses.

Valuable Use  A use for which individuals willingly sacrifice; to voluntarily bear a cost to avail oneself of this resource.

Scarcity and Abundance  A resource can be both abundant and scarce if it has more than two valuable uses. Columbia River Mississippi River

Not Plentiful, Not Scarce  Smallpox virus  Economics textbook given to a literature major.  Hamburger to a vegetarian  Fur coat to a PETA member

Economic Reasoning: Major Premise  All social phenomena emerge from the choices that individuals make in response to expected costs and benefits to themselves. Paul Heyne

Key Ideas  Incentives: anticipated cost or benefits, monetary and nonmonetary, that influence individual choices.

Inference  Human choice is influenced in a predictable way by changes in incentives.

In the Workplace

Applications  Needs: Something that people will pay any price, bear any cost to obtain.  Wants: Something that people make a choice to obtain depending upon the cost or sacrifice.

Needs Worksheet #1

Needs II

Needs vs. wants  The concept “Needs” is not helpful when trying to explain or anticipate human behavior.  “Needs” suggest individuals have no choice with regard to their behavior.  “Wants” suggests the scarcity forces individuals to choose among alternatives.

Importance of Social Choice: Three Key Questions  What to Produce?  How to Produce?  For Whom Will It be Produced?

Conclusions  Scarcity forces people to choose.  People choose purposefully from among alternatives.  All choices involve alternatives, therefore there are no cost free choices.  Incentives influence choices.  Producers and consumers respond predictably to changes in incentives.

Assignment  Read the article on Scarcity and notice what happens when scarce resources are treated as if they were not scarce.  Find examples of scarce resources in your school that are not treated as scarce.

Back-Up Activity: Circular Flow  Implications of individuals choosing to trade with one another.

Conclusions  A change in the system influences the entire system.  Everyone’s cost is someone else’s income.  Savings reduces income.  Income losses by producers will reduce incomes for households.