Economics and You

What is Economics?Why study Economics?

We need to make choicesall the time! WHY?

What is a Want?

A want is a A want is a desire desire for for goods and goods and

servicesservices

I want to eat a

banana.

(Unlimited) Wants(Unlimited) Wants

Human wants are Human wants are unlimited unlimited and can and can bebe concreteconcrete oror abstractabstract

Can you give some Can you give some examples?examples?

Which one is a Concrete want and Which one is a Concrete want and which one is an abstract ?which one is an abstract ?

Example 1:Example 1:• I want a sandwich I want a sandwich

for lunch.for lunch.

Example 2:• I need to be loved.

This is aconcrete want

This is anabstract want

Wants are also…Wants are also… We always We always

prefer more prefer more goods and goods and servicesservices

When some of When some of our wants are our wants are satisfied, we will satisfied, we will always have always have new wantsnew wants

So we canSo we can nevernever bebe fully fully satisfiedsatisfied..

I want MORE …!!!

Thinking time!Thinking time!

• Suppose Mary Suppose Mary bought 4 ice bought 4 ice creams, she said creams, she said that she had had that she had had enoughenough, so her , so her want for ice-cream want for ice-cream is limited – no is limited – no more ice cream?!more ice cream?!

• Does her behavior Does her behavior show that human show that human wants are limited?wants are limited?

Think about it …

• What are the means that are needed to fulfill these needs and wants?

I want to eat

bananas, what

should I do?

Yes, we use MONEY to buy, but …

• wait a minute! Before we buy the bananas

• Some one must need to produce the bananas first

• What do we need to use to produce bananas?

Productive Resources(FOUR Types of Factors of

production)• CAPITAL: e.g. MACHINES and EQUIPMENT, etc.

Man-made resources

• ENTREPRENEUR: the OWNER of a company

Human resources

• LAND: natural resources e.g. sunlight, air, crude oil, dolphins in the open sea, etc.

Natural resources

• LABOUR: e.g. workers, managers, teachers, etc.

Human resources

Factors of production

Human resources

Natural resources

Man-made resources

LABOUR

ENTREPRENEUR

LAND

CAPITAL

Production

Goods and

services (Output)

(Input)

What are all these Resources have in common?

• Resources have either money value (a camera) or non-money value (air, parental love)

• Directly or indirectly used to satisfy human wants

• Resources, in general, have alternative uses.

Limited supply

Unlimited wants

Scarcity

Limited resources

How to satisfy

unlimited wants with

limited resources?

So with unlimited wants and limited resources, we face a

problem – the problem of SCARCITY

SCARCITY SCARCITY (a relative concept)(a relative concept)

the situation in which the limited resources available are insufficient to satisfy the unlimited wants

a universal phenomenon

The THREE RICHEST men in the world according to Forbes

Bill Gates

Carlo Slim

Warren Buffett

Does the richest men face the problem of scarcity?Does the richest men face the problem of scarcity?

Carlo Slim, the richest man in the world. In a recent survey in 2010, the estimated value of his personal assets was about US$53.5billion.

If I have enough money to satisfy all of my wants, does this mean that I don’t face the problem of scarcity? Why?

• No. He still has to face the problem of scarcity.• Human wants are unlimited.When some

wants are satisfied, we develop other ones. • Human wants can never be fully satisfied.

What seems to be the scarcest thing around? For a lot of people, it is TIME. You can be the

richest person on earth and still not have

“enough time.” Why is it valuable to you?

(Opportunity) cost : When we make a choice, we have to bear a cost – you give up an opportunity of choosing some other things!

Choice and (opportunity) cost

ChoiceUnlimited wants

ScarcityLimited resources

For example,

A plot of land could have several possible uses, it can be used to develop, for example:

Choice A: a residential building

OR

Choice B: a commercial building

• Let’s assume the money used to build a residential building and a commercial building are the same (say, $1 billion).

• What do the developer have to give up, if he decides to use the land to construct a residential building,?

• The choice of constructing a commercial building

What does that mean?

• In other words, the cost of building a residential building is to give up the choice of building a commercial building

You have two choices of how to spend a Saturday night.

1st choice: To see a movie

2nd Choice: Going online

I like seeing movie better!

Which option will you choose? Why?

I like seeing movie better!

What is the cost of choosing the above option,i.e. going to see a movie?

Going online is the cost of going to see a movie. Why???

Choice and CostUnlimited

wantsLimited resources

Scarcity

Choice

Chosen option(the BEST choice) COST =

(NEXTBEST choice given up )

Surfing the Internet at home Singing Karaoke in a friend’s house

Playing basketball in a park

The 1st Option

The 2nd Option

The 3rd Option

What is the cost of Joey’s

decision to surf the

Internet at home? Joey

As it is the next best choice given

up.

• In other words, the cost of Joey surfing the internet at home is playing basketball in a park.

• But why NOT all the choices given up?

The 2nd Option

• Even if Joey does not choose the 1st option (the BEST option to Joey), she will not choose all the other options to do, she will …only choose the NEXT BEST option – i.e. the 2nd option !!!

Surfing the Internet at home

Singing Karaoke in a friend’s house

Playing basketball in a park

The 1st OptionThe 3rd Option

Conclusion

• Back to the questions: What is economics? Why study economics?

• All people face the problem of scarcity.

• Economics tries to uncover the processes that affect how people’s lives come to be what they are; and

• to identify ways to help improve these processes and in turn better futures