What is Economics?

Defining Economics Wants Needs What fundamental qualities make up Economics? Versus Wants Needs

What’s the Difference between a Need and a Want? NEEDS WANTS Those goods and services that are necessary for survival Food, clothing, shelter Those goods and services that people consume beyond what is necessary for survival

Needs V. Wants Video

Human wants are: a) Always fixed b) Limited c) Unlimited d) Likely to decrease over time

Then what is the definition? Economics is the study of how scarce productive resources are used to satisfy human’s unlimited needs & wants.

The Condition of Scarcity Our resources are limited…but our desires for goods and services are NOT. Something is scarce if it has more than one valuable use. Consider your time. When resources are used to do one thing, they are unavailable to do others.

Scarcity scarce resource (factor of production) is something that is both limited AND desirable. human wants are unlimited, but items used to produce goods and services (factors of production) are limited. The Scarcity Principle: People attach more value to things that are few in quantity.

To Choose Is To Sacrifice Scarcity forces us to make choices. Choosing an action means we sacrifice doing something else. The opportunity cost of a choice is the value of what is given up [THE NEXT BEST ALTERNATIVE].

Scarcity is correctly described by which of the following statements? I. Scarcity exists if there are more uses for resources than can be satisfied at one time. II. Scarcity exists if decisions must be made about alternative uses for resources. III. Scarcity would not exist in a society in which people wanted to help others instead of themselves. (a) I only (b) II only (c) III only (d) I and II only (e) I, II, and III

END OF SCARCITY

Opportunity Costs & Tradeoffs opportunity cost is the value of the next best alternative given up when making a choice. trade-offs are all the possible alternatives while the opportunity cost is only based on the next best alternative to what was selected. scarcity is the reason we are forced to make choices. We cannot have everything we want in life. Even Bill Gates with all his financial power faces limits to how many people he can serve in his fight against Malaria, HIV, and Polio.

You can choose among thousands of colleges so these are all the possible trade-offs. If you apply and got into only two colleges, University of Georgia and Georgia Military College, the opportunity cost would be the value of the college you gave up in their choice. Every decision you make involves a cost. Economics always adheres to the principle of “TINSTAAFL”. There is no such thing as a free lunch!

Opportunity Cost Video What is the opportunity cost?

Tradeoff v. Opportunity Cost Comparison

OPPORTUNITY COSTS & TRADEOFF END

Who makes these decisions? Consumers – the people who decide to buy things What is the incentive of the consumer? Get the most of what they value from their expenditures, BUT they are constrained by their budget.

Producers – The people who make the things that satisfy consumers’ needs and wants. What is the main incentive of the producer? Provide consumers with what they value the most while covering their costs of production and making a profit.

What are goods and services? Physical objects that can be purchased Pizza, bicycle, shoes Actions or activities that are performed for a fee. Lawyers, teachers, plumbers

In economics the central problem is production.   scarcity.   allocation.   consumption.   money.

Our economy is characterized by: unlimited wants and needs. unlimited material resources. no energy resources. abundant productive labor. no way to achieve satisfaction.

Eliminating the scarcity problem would: eliminate the need to study economics. increase the need to study economics. divert resources from government activity to education. eliminate the possibility of a "free lunch.” divert resources from hot fudge sundaes to highway construction.