1. Scarce Chairs Why can’t we have it all?

2. How are seats allocated in our society? Movie theaters Top universities Restaurants Airlines Galactic space shuttle Beds in private hospitals

3. Economist’s favorite solution: The Sealed-bid auction: Do NOT let anyone see you bid! Do not talk to anyone!!! Directions: 1.) Write your full name (first, last) 2.) Write the maximum price you would be willing and ABLE to pay to have a chair to sit on for the next 2 months. The bid is what you are willing to pay each day/each class period. Ex..5 ¢ a day or.25¢ a day or $1.00 a day. Or, $5.50 a day. Or, even $10.00 There is no limit….You can pay me each week, starting tomorrow 3.) Once you make your bid to buy a chair to sit in, sign your bid, fold your bid, and then come hand it to me! Remember: NO TALKING. I want complete silence and eyes on your own paper until all bids are in. We will have plenty of time to discuss after the sealed-bid auction is complete.

4. Let’s Talk…

5. Scarce Chairs Why can’t we have it all?

6. Is the Price System Fair?: 1.) Was our price system for deterring chair allocation fair? Those who are able to pay the most for scarce goods (university spots, high quality health care, nice cars, big houses), have probably worked the hardest and therefore earned higher incomes than those who cannot afford these nice things. In this regard, the price system makes sure that those who work hardest and are most productive end up enjoying a higher standard of living since they can afford to consume more and nicer products. 2.) Or, was out price system unfair? Those who cannot afford to pay the prices of lots of nice things may not be able to do so because they have not worked hard enough or have chosen not to work hard enough(either in school or in the labor market). But, how then do we explain the fact that many factory workers, miners, fisherman, farmers, and others who obviously work incredibly hard, cannot afford to buy lots of nice things ( and get their kids into the best universities)?

7. The questions we struggled with today in class are some of the most fundamental questions that the field of Economics deals with… 1.) What is scarcity and why does it exist? 2.) What are some scarce resources in the world outside of school? 3.) How should scarce resources be allocated between competing wants and needs? 4.) Who should get the stuff that scarce resources go towards producing? 5.) What is fair? And what is efficient? 6.) What kind of system for allocating scarce resources is both efficient and fair?

8. Why did some people bid really high? Richer Placed a high value on comfort: They wanted to sit in a chair more than other students in the room. Utility: : the state of being useful, profitable, or beneficial. In Economics Utility is a way of measuring pleasure or happiness and how it relates to the decisions that people make. Utility measures the benefits (or drawbacks) from consuming a good or service or from working.

9. We have already seen that the focus of economics is to understand the problem of scarcity: the problem of fulfilling the unlimited wants of humankind with limited and/or scarce resources. Because of scarcity, economies need to allocate their resources efficiently. Underlying the laws of demand and supply is the concept of utility, which represents the advantage or fulfillment a person receives from consuming a good or service. Utility, then, explains how individuals and economies aim to gain optimal satisfaction in dealing with scarcity.

10. Scarcity exists: When something is limited in supply and in demand, it is scarce Resources: Everyone wants to sit, but there aren’t enough chairs…chairs were scarce… What kind of resource is the chair? Scarcity is a function of both demand and supply. The greater the demand relative to supply, the more scarce something is. Because scarcity exists, we must make choices about how to allocate our scarce resources We had to choose between competing systems for allocating the chairs Capital: anything that creates wealth labor Natural resources

11. Rationing system: When faced with scarcity, a system must be decided upon to ration the scarce items Think of all the different systems we came up with as a class…How can you pick the most fair and efficient system of allocating scarce resources?

12. Something that is scarce has value: Everyone wanted a chair, yet they were limited Because the chairs provide us with benefit, we value them, and are therefore willing to pay to have one. Value is a function of scarcity. The scarcer something is, the more valuable it becomes While less scarce items are less valuable

13. Equity vs. Efficiency: Equity means fairness… While efficiency requires that resources go toward their most socially optimal use: those who value something most end up getting that which they value. The tradeoff between equity and efficiency is a major theme for economists

14. Equity vs. Efficiency continued… What is most efficient (an auction to determine who is willing to pay the most for the chairs) may not be equitable (or fair) When the richest students end up in the chairs, those with lesser ability to pay feel that they have been treated unfairly A lottery in which names would be drawn from a hat to determine who gets a chair is certainly more equitable, but is actually less efficient, since those who get the chairs may not be those who place the greatest value on having a chair. Auctioning the chairs assures that those who value them the most will end up getting them, therefore resources are allocated most efficiently. What do you think is the best way to allocate scarce resources? This is the million dollar question….