1. The Economic Problem and Scarcity

2. Introducing the Economic Problem
Imagine that you just won the state lottery and then used all of your winnings to bet successfully on a thousand-to-one shot in a horse race. You’ve now ended up with more money than you could have imagined. More than Tiger Woods, Michael Jordan, and Bill Gates combined.

3. Introducing the Economic Problem
Now, make a list of what you would buy with the billions of dollars you now have.
What is the problem here?
Wants are practically unlimited

4. Introducing the Economic Problem
Another part of the problem is that although wants are unlimited, the world’s resources are limited, or scarce
With 6% of the world’s total population living in the United States, we use about 25% of its energy.

5. We have an Economic Problem because…
…needs and wants are unlimited, but resources are scarce.

6. Three Basic Economic Questions
Since the economic problem involves deciding how to use scarce resources in order to meet unlimited wants and needs, societies must decide:
1. What are we going to produce?
2. How is it going to be produced?
3. Who is it being produced for?

7. The Three Types of Economic Systems
Historians have identified three types of economic systems that have developed to solve the economic problem.
Traditional
Command
Market

8. Traditional Economy Hunter and Gatherer Civilizations
These economics are based on hunting, fishing, and farming
Economic decisions in traditional economies are made by a series of rituals that have been handed down from one generation to the next.

9. Traditional Economy
The decision of who knows what, know as the division of labor, was usually determined by gender;
Men hunted and finished
Women stayed home
Leaders were “paid” with a larger share of the hunt in exchange for advice or guidance

10. Traditional Economy
Under the traditional caste system, each male does the same work as their father
Successful hunts resulted in a division of the spoils
With the successful hunter receiving the best parts of the animal; however they were also expected to share with those not as fortunate, so that everyone would be able to eat.

11. COMMUNISM Command Economy
Another way of solving the economic problem is by forcing people to do certain jobs and dictating their profession. This is also known as…
COMMUNISM

12. Market Economy Also known as free enterprise and capitalism
Under a completely free-market economy, what is produced, how much is produced, and for whom it is produced are determined solely by those who make the items and those who consume them
Survival of the Fittest Economics

13. What kind of economy is the US?
The US does NOT have a completely free-market economy
The government makes many decisions that affect the market. For example…
It taxes alcohol and tobacco to discourage consumption
It gives students loans to encourage education
It pays for roads to allow people to use their cars
It regulates minimum wages

14. What Does an Economy Do?
PRODUCES GOODS AND SERIVCES FOR THE PEOPLE, BY THE PEOPLE (see what I did there?)

15. Producing Goods and Services
The US’ annual output totals about $10 Trillion, nearly 30% of the world’s total output
This production comes in the form of goods or tangible products such as…
Books
Cars
Televisions
Anything else you can physically see and use

16. Producing Goods and Services
More of this production is in the form of services or work performed for someone else such as…
Haircuts
Home repairs
Daycare
Teachers

17. The Factors of Production
How are these goods and services made though?
The three factors necessary to produce a good are…
Land
Labor (workers)
Capital (money)