Download Foundations of Economics

Foundations of Economics 2
Objectives
• Examine Factors of Production
• Analyze concept of scarcity
• Examine Marginal Analysis
C1 PO1
Prioritization of Needs
• Maslow’s hierarchy says we all have needs, but
some needs are harder to fill than others.
• List 5 “easy to fill” needs
• List 5 “hard to fill” needs
• Pair and share
– Where do you get the resources to fill those needs?
Factors of Production
• Factors of
Production(FOP’s)describe
the combination of LAND,
LABOR and CAPITAL
resources necessary for
production of
goods/services
3 Categories
• ALL FOP’s fall into one of three categories
– LAND
• Atomic elements, organic compounds, natural
resources such as water, soil…
– LABOR
• Production workers, Managers, Executives…
– CAPITAL
• Investment money, Creditworthyness,
Transportation Tools, Production Tools…
FOP and ME
• Pick something you have with you today
(clothes, phone, ect)
– What elements/compounds are in it?
– Where was it made, and by what kind of
workers?
– What tools were necessary to create that
object?
– What tools were necessary to get that object
to where you purchased it?
FOP Limits
• All FOP’s run up against limits
– “Natural Limits” on Land
– #1 Russia, #4 USA, #15 Mexico, #208 Singapore
– “Productivity Limits” on Labor Capacity
• 2009-10 WEF Rankings
– #2 USA, #3 Singapore #60 Mexico #63 Russia
– “Liquidity Limits” on Capital Investment
• 2009 GDP Rankings
– #1 USA ($14 tril) #7 Russia, #11 Mexico, #45
Singapore
• Scarcity limits on the availability and
efficient use of FOP’s restrict a
country’s potential economic
development
• Rich countries combine high productivity and high
liquidity, with access to internal and external
natural resources (United States, EU, China,
Japan)
• Poor Countries combine low productivity with low
liquidity with poor access to natural resources
– Story of Congo-Kinshasa
Scarcity
• Not all resources are equally available or
convenient. These resources are called
chronically“scarce”
• Scarcity= Long term, limited resource
– Diamonds
– Gold
– Drinking Water
Scarcity 2
• Scarcity is relative and can be at many
levels for many reasons
– International, National, Local
– Scarce by supply (monopoly, cartel,
quantity)
– Scarce by demand (low market awareness)
– Scarcity is part of the material/labor costs of
production
Scarcity
• Beacause of
scarcity,
societies,
producers and
consumers must
choose how
“best” to use
their resources
Choices
2009 US Federal Budget
Shortage
• Shortage= Short term lack of resource
– Usually caused by a “acute” event
– Can show drastic price increases
– Disaster destroys houses=Rent prices?
– Gasoline Pipeline breaks= Gas prices?
Surplus
• Surplus=Short Term excess of
resources
– Usually caused by an “accute”event”
– Can show drastic price decreases
• Large amount of foreclosures= House Prices?
• Halloween candy on Nov 3= Candy Prices?
FOP and Marginal Analysis
• No producer or consumer can gather all the
materials, process them and cover their
needs by themselves.
• They rely instead on marginal analysis
(figuring out what is most economical for
their situation).
– FOP’s help determine the production costs of all
goods and services
– These vary widely over time, distance and markets
Forbes 2009 World’s Richest
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1 Warren Buffett (United States) 62 Billion
2 Carlos Slim Helu & family (Mexico) 60
3 Bill Gates (United States) 58
4 Lakshmi Mittal (India) 45
5 Mukesh Ambani (India) 43
6 Anil Ambani (India) 42
7 Ingvar Kamprad & family (Sweden) 31
8 KP Singh (India) 30
9 Oleg Deripaska (Russia) 28
10 Karl Albrecht (Germany) 27
11 Li Ka-shing (Hong Kong) 26.5
12 Sheldon Adelson (United States) 26
13 Bernard Arnault (France) 25.5
14 Lawrence Ellison (United States) 25
15 Roman Abramovich (Russia) 23.5
16 Theo Albrecht (Germany) 23
17 Liliane Bettencourt (France) 22.9
18 Alexei Mordashov (Russia) 21.2
19 Prince Alwaleed Bin Talal Alsaud (Saudi
Arabia) 21
20 Mikhail Fridman (Russia) 20.8
269
Billionaires
29
1
United States
2
Japan
3
Germany
28
4
Italy
17
5
Canada
16
6
Switzerland
15
7
France
15
8
Hong Kong
14
9
Mexico
13
10
United
Kingdom
12
11
Russia
8
11
Saudi Arabia
8
Marginal analysis
• Bill Gates is walking down the street to a
critical business meeting, when a gust of
wind blows an $100 bill his way. Should he
pick it up or keep going? Explain
• What if he was on vacation instead?
Explain
Bill Gates
• Founder of Microsoft
• Harvard Drop-out
• Net worth (stocks, property, cash, ect)
– $58 Billion (2009= #3 World)
Mr Gates time in one year is worth $1837.91
per second!
Your Margins
• List 5 things you do to save on your expenses
• List 5 things you pay to have others do
• Analyze- why did you chose to save on those 5
items?
• Analyze- why do you pay on those 5 items
• Pair and Share
Three Economic Systems
• Three Major economic systems approach
Marginal analysis in different ways
• Capitalism- People free to buy and sell most
anything as supply and demand dictate price
– Lassiez faire
• Socialism- Government ensures vulnerable
people also have access to goods and services
• Communism-Government owns everything and
divides it up
– “From each, according to their abilities. To each
according to their needs”