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Scarcity
Chapter 1
The Fundamental Economic Problem: Scarcity
 Scarcity is the condition that results from a society not having
enough resources to produce the things people would like to
have.
 How big of a deal is scarcity? Put it this way, just about every
war ever fought can historically be tied to scarcity. In other
words because Nation A did not have enough resources to
produce things its people wanted, it tried to take them from
resource-rich Nation B.
 Scarcity is caused by the fact that there are unlimited wants, but
there are not limited resources.
 As a result, societies are forced to make choices: What will
they make, how will it be produced, and for whom will it be
produced?
Economics: A Problem of Scarcity
Problems of Scarcity
Unlimited
Wants and
Needs
Limited
Resources
Three Economic
Questions
What to produce?
How to produce?
For whom to
produce?
Free Enterprise
Centrally
Planned
Mixed
Economics
 What is it?
 Is the study of how people try to satisfy seemingly unlimited
and competing wants through the careful use of relatively
scarce resources.
 Social Science – because it deals with the behavior of people
as they deal with this basic issue (scarcity).
 Economics deals with 4 key elements:
1. Description 2. Analysis 3. Explanation and 4. Prediction
Description
 GDP – Gross Domestic Product. This isn’t something that is
gross, like a booger factory. It’s the gross (as in total) dollar
value of all final goods and services within a country’s
borders in a 12 month period. (ours is in the neighborhood
of $13 Trillion.
 It’s a comprehensive measure of a country’s total output, and a
key measure of a nation’s economic health.
Analysis
 Economics analyzes the economic activities it describes
 I.E. – why are the prices of some items higher than others?
 Why do some people earn higher incomes than others?
 How do taxes affect people’s desire to work and save?
Explanation
 After a problem has been analyzed it needs to explain or
communicate this knowledge to others.
Prediction
 Economics is the study of what is happening and what tends to
happen.
 Most likely effect of different actions
 Economics can help us become more informed citizens
NEEDS / WANTS
A need is a basic requirement for survival (food, clothing &
shelter)
 A want is something we would like to have, but is not
necessary for survival.
NEEDS VS. WANTS
 http://www.youtube.com/watch?v=QuB3kr3ckYE
(needs)
 Vs.
 https://vimeo.com/90127834 (wants)
Man Vs. Wild
Think travel shows: Bear Grylls and Survivorman is to needs as
the TACO commercial on SNL is to wants.
 In this case food can be both a want and a need. Bear Grylls would want
to eat a steak, but given the scarcity of steak on the desert/deserted
island/mountain top/etc. he will need to eat whatever can sustain him.
TINSTAAFL
 There is no such thing as a free lunch.
 As the saying goes, if it’s too good to be true, it is.
 The cost will get covered somewhere, sometime, eventually.
WHAT, HOW and FOR WHOM
 Never easy questions to answer, but always dictated by
scarcity.
 What to produce? A society cannot have everything so it
must decide.
 How to produce it? Workers vs. Automation
 For Whom? Who will receive the existing supply?
Factors of Production
FACTORS OF PRODUCTION:
 Resources required to produce the things we would like to
have:
 Land: Anything from actual land to the basic “gifts of
nature”. This could be mineral deposits (like gold lodes or oil
fields), livestock, farmland, water, forests, sunshine, and the
climate needed to grow the crops. Because none of this is
infinite, there is a limited supply. And where there are limits,
there is scarcity.
Capital and Goods
 Capital: Also known as capital goods, these re the tools,
equipment, machinery, and factories used to make the product
and or service. These can be both products and capital.
 Here’s an example: Dell produces computers – they are
products made for purchase and profit. However, those
computers, when used here at school are also CAPITAL. They
are used to help produce lesson plans, student papers, grades,
the school paper and yearbook, and other educational related
products.
Labor
• LABOR: Third factor of production.
• These are the people who make the products, with all their
efforts, abilities and skills.
• What determines the quantity and quality of labor?
Entrepreneur
• Entrepreneurs:These are the people who are the risk-takers in
search of profits who does something new. These people are the
driving force in the economy, because they are the people who
start new businesses or bring new markets to product.
 Kevin A. Plank spent $460 to have seven synthetic shirts
sewn AND thousands of dollars more having many more
shirts made as well.
 There was no guarantee that anyone would by his new T’s.
He was willing to take risks.
 UNDER ARMOUR EXAMPLE ON PAGE 11