What would you do?
Economics: Close to Home
Consider it… o If you had a million dollars, what would you do with your money? o Would you be able to afford everything you wanted? o Would everything you wanted be available? o Could you use your money productively – to produce more wealth? o How do these questions relate to us, even if we don’t have a million dollars?
What is Economics? Economics – the study of our efforts to satisfy our unlimited wants through the use of limited resources.
Did you know? The word “economy” comes from the Greek term meaning “running a household.” The economic system of a country determines the way it is run.
Without limited resources, nothing would be scarce. Without scarcity, there would be no economy.
Something is scarce if someone is willing to pay for it.
Economists divide scarce things into two groups:
Group 1: Goods Goods are tangible items that you can hold. They are commodities such as sugar, lumber, or iPads.
Group 2: Services Services are intangible. They involve people spending their time meeting the needs of others such as a barber, musician or architect.
Take a second to get a piece of loose leaf. Put your name and date at the top of the page.
Goods or Service? Goods: # 3, 5, 8, 10, 12 Services: #1, 2, 4, 6, 7, 9, 11
Assignment: On the back side of your loose leaf, identify a benefit that each good or service provides to you and your family. Value = 10 marks Goods A bag of candy A school book A DVD An apple A pair of jeans Services A math lesson from your teacher A check-up from the doctor A bus ride A swim at the community centre pool A snow plow clearing your street
The City Market This painting by Richard Flynn depicts the City Market in Saint John, NB. People have been visiting this marketplace since – What attracts us to market places? – Do we go there for reasons other than to buy and sell? – Can you think of modern markets where buyers and sellers do business without actually meeting?
Let’s review… o Without scarcity, there would be no economy. o Something is scarce if someone is willing to pay for it. Let’s look at the following cases to understand the scarcity principle.
Case 1: Question Suppose that in the fictional land of Atlantis grow thousands of orange trees and only a few apple trees. Which fruit would be scarce? An economist would need more information to decide.
Case 1: Answer If people of Atlantis never eat apples but love oranges, then, in the economist way of thinking, it is oranges that are scarce.
Case 2: Question Suppose that you set up a booth in the schoolyard to sell fresh air. Your business would likely fail. Why?
Case 2: Answer An economist would say that this happened because you were trying to sell something that was not scarce.
Case 2: Answer Yet there are circumstances where fresh air, pressurized air, or pure oxygen are quite scarce. In those situations it has a price.
Case 2: Answer Oxygen vending machines were common in Tokyo, Japan, when smog smothered the city in the 1970s. If you felt short of breath you could put a mask on your face, insert a coin, and inhale.
Opportunity Cost When something is scarce, it has to be rationed (limited).
In economics, the usual way of determining who gets scarce things is price rationing. The scarcer it is, the more it costs.
For example, the guy with a lot of money gets the luxury car. This is price rationing.
The real cost of an item is determined by the things you sacrifice, whenever you choose to spend money.
“What else can I do with the money?”
I have enough money for ONE…
What is Opportunity Cost? Opportunity Cost - What a person has to give up to buy something.
For a rich person buying a car, the opportunity cost is low because they don’t have to give up much in order to afford it.
For a poorer person buying a car, they might have to give up an opportunity to own a house, so the opportunity cost for them would be high.
Impulse Buying - When we fail to weigh just how high the opportunity cost is. Often we buy things we can not really afford. Often we buy things we can not really afford.