1. Learning Objectives
Evaluate whether even affluent people face the problem of scarcity
Understand why economists consider wants but not needs 3

2. Learning Objectives
Explain why the scarcity problem induces individuals to consider opportunity costs
Discuss why obtaining increasing increments of any particular good entails giving up more and more units of other goods 4

3. Learning Objectives
Explain why society faces a trade-off between consumption of goods and capital goods
Distinguish between absolute and comparative advantage 5

4. Scarcity
Scarcity
Occurs when the ingredients (resources) for producing things that people desire are insufficient to satisfy all wants 10

5. Scarcity
What scarcity is NOT:
It is not a shortage. 11

6. Scarcity Production Resources or Factors of Production
Any activity that results in the conversion of resources into products that can be used in consumption
Resources or Factors of Production
Inputs that are used to produce things that people want 12

7. Scarcity Resources or Factors of Production Land Labor Capital
Entrepreneurship 14

8. Scarcity Resources or Factors of Production Land Labor
Natural resources or the gifts of nature
Labor
The human resource 14

9. Scarcity Resources or Factors of Production Capital Physical Capital
All manufactured resources
Human Capital
Accumulated training and education of workers 15

10. Scarcity Resources or Factors of Production Entrepreneurship
Person who organizes, manages, and assembles the other resources
Risk taker
Maker of basic business policy decisions 16

11. Scarcity Goods Services
Goods are all things from which individuals derive satisfaction and are, thus, valued.
Services
Tasks that are performed for someone else 17

12. Scarcity, Choice, and Opportunity Cost
The highest-valued, next-best alternative that must be sacrificed to attain something or satisfy a want 21

13. Scarcity, Choice, and Opportunity Cost
In economics, cost is always a forgone opportunity. 23

14. Scarcity, Choice, and Opportunity Cost
Questions
What is the opportunity cost of attending this economics class?
What is the opportunity cost of attending a Dave Matthews concert?
What is the opportunity cost of increasing research for a vaccine? 22

15. Scarcity, Choice, and Opportunity Cost
Limited Resources & Unlimited Wants
Scarcity
Choices
Opportunity Cost

16. The World of Trade-Offs
Opportunity cost graphically:
The production possibilities curve (PPC) represents all possible combinations of total output that could be produced.
Along the production possibilities curve = efficiency 27

17. Production Possibilities Curve (PPC)

18. Production Possibilities Curve (PPC)
Questions
What would happen to the production possibilities curve if you spent more time studying?
What would happen to the potential grades?
Is it possible that the trade-off might not be constant? 29

19. The Choices Society Faces
Production possibilities assumptions
Resources are fully employed
Production, Resources, and Technology do not change over the time period. 30

20. Society’s Trade-Off Between Digital Cameras and Pocket PCs

21. Society’s Trade-Off Between Digital Cameras and Pocket PCs

22. The Law of Increasing Relative Costs

23. The Choices Society Faces
Law of Increasing Relative Costs
As society attempts to produce more of a good, the opportunity cost of additional units of that good generally increases. 35

24. The Choices Society Faces
Question
How does the specialization of resources influence the shape of the production possibilities curve? 36

25. Economic Growth and the Production Possibilities Curve
Increases the production possibilities of digital cameras and Pocket PCs
Occurs over a period of time
Is illustrated by an outward shift of the production possibilities curve 37

26. The Choices Society Faces
Technology
Society’s pool of applied knowledge concerning how goods and services can be produced
Improving resource productivity 31

27. Economic Growth Allows for More of Everything

28. The Trade-Off Between the Present and the Future
The PPC can be used to illustrate the trade-off between present and future consumption.
Consumption
The use of goods and services for personal satisfaction 39

29. Capital Goods and Growth
Consumer goods
Goods produced for personal satisfaction
Capital goods
Goods used to produce other goods
Capital Goods per Year A B 4 5
Consumption Goods per Year
($ trillions)

30. Capital Goods and Growth
Future growth as a result of A on the left-hand diagram
Capital Goods per Year A
Recreation per Year
Today B 4 5
Consumption Goods per Year
($ trillions)
Food per Year

31. Capital Goods and Growth
Future growth as a result of C on the left-hand diagram C
Capital Goods per Year
Recreation per Year A
Today B
Consumption Goods per Year
($ trillions)
Food per Year

32. Capital Goods and Growth
Future growth as a result of A on the left-hand diagram
Capital Goods per Year A
Recreation per Year
Today B 4 5
Consumption Goods per Year
($ trillions)
Food per Year
Future growth as a result of C on the left-hand diagram C
Capital Goods per Year A
Recreation per Year
Today B
Consumption Goods per Year
($ trillions)
Food per Year

33. Capital Goods and Growth
Observations
Forgo consumption goods to produce capital goods
Increase in capital goods stimulates economic growth 43

34. Capital Goods and Growth
Observations
In the future the economic system can produce more consumer goods
An increase in capital goods will lead to a higher rate of economic growth in the future 44

35. Why So Many People Don’t Vote