Download Scarcity

Section 1: Scarcity and the Factors of
Production
Economics


How individuals,
governments, firms and
nations make choices
on allocation of scarce
resources to satisfy
their unlimited wants.
Scarcity forces us to
make choices by
making us decide what
is important to us.
Wants vs. Needs

Need – essential for living
Want – something we desire, but not
necessary for survival.

Goods and services

Scarcity




Limited amounts of resources to supply
goods and services results in scarcity.
Different from shortage
Shortage – consumers want more of a good
or service than producers are willing to
make available at a particular price.
(Temporary/Long Term)
Scarcity always exists
 When
wants of the people exceed
resources
 All
the wants of people in the world are
unlimited.
 A scarce resource is anything which
commands a price in economic transactions –
 The price may not be limited to currency, it
can relate to resources.
 Examples???
 Resources
are needed to produce goods and
services that satisfy our wants
Question

What is the main focus
of economics?
 As
wants are unlimited, the resources to
satisfy those wants are limited.
 Scarcity is such an important fundamental
economic concept that some economists
have said that the science of economics
wouldn’t exist were it not for scarcity.
Entrepreneurs

Characteristics:




Take risks – to earn profits
Own ideas – patent
Creative new industry – attractive to consumers
Provides economic growth – provides jobs
Factors of production
1.
2.
3.
Land – natural resources
Labor – effort people devote to tasks for
which they are paid. (Education)
Capital – human – made resources that is
used to produce other goods and services.
1.
2.
Physical capital – equipment, tools, building
Human capital - expertise
 Land
and natural resources are limited
 Capital resources are limited
 Labor and entrepreneurial resources are
limited
 Time is limited
 There
is no way around this.
 What choice will generate the most value?
 Bill
Gates even deals with scarcity???
Hint – scarcity does not have to relate to a
thing/product.
 From
love to religion, every decision we
make can be understood and describe with
economic principles.
 A healthy dose of economic logic can explain
an array of social and behavioral issues –
issues that few people would typically
associate with economics.
Scarcity require answers to three
questions.
1.
2.
3.
What will be produced?
How will it be produced?
For whom will it be produced?
 Way
to decide who gets what portion of all
resources and goods available.
 In our society, money decides who gets what.
 Exists
because of scarcity
 Takes the form of people trying to get more
of the rationing device (money)
 Whatever the rationing device is, people will
compete for it.
Section 2: Opportunity Cost
 Every
time we choose to do something, we
give up the opportunity to do something
else.
 Involves weighing costs and benefits.
Trade-offs
 Act
of giving up one benefit in order to gain
another, greater benefit.
 May also involve values that are not so easy
to measure such as enjoyment, job
satisfaction or the feeling of well-being that
comes from helping somebody.
Businesses & Trade-offs
 The
decisions that businesses make about
how to use their factor resources – land,
labor and capital also involve trade offs.
Government & Trade-offs
 National,
state, and local governments also
make decisions that involve trade-offs.
 “Guns or butter” – decision of spending
money on military or domestic items
Determining Opportunity Cost
 In
most trade-offs, one of the rejected
alternatives is more desirable than the rest.
The most desirable alternative somebody
gives up as the result of a decision is the
opportunity cost.
 Trade-offs often lead to opportunity cost.
 Your decision depended on the specific
opportunity cost – the value to you of what
you were willing to sacrifice.
 Trade off – what giving up
 Opp cost – value of what giving up
 The
value of the thing that you give up in
order to do something else.
 What you give up in order to buy or get the
other thing.
Making the Decision
 With
each different set of alternatives, the
possible benefits and opportunity costs
change as well.
 One thing does not change, though. We
always face an opportunity cost. As
economists say, “Choosing is refusing.”
 When we select one alternative, we must
sacrifice at least one other alternative and
its benefits.
Cost Benefit Analysis
 Decision
makers have to compare the
opportunity costs and the benefits- what
they will sacrifice and what they will gain.
 Marginal costs/marginal benefits.