The Economic Way of Thinking Scarcity: The Basic Economic Problem.
-
Upload
betty-stewart -
Category
Documents
-
view
233 -
download
0
description
Transcript of The Economic Way of Thinking Scarcity: The Basic Economic Problem.
![Page 1: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/1.jpg)
The Economic Way of Thinking
Scarcity: The Basic Economic Problem
![Page 2: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/2.jpg)
Loreman - 2014
What Is Scarcity
• People Have Lots of Desires• These are broken down in to two categories• WANTS• NEEDS
![Page 3: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/3.jpg)
Loreman - 2014
What Is Scarcity
• NEED• Satisfied by consuming a good or service• Necessary for survival• FOOD• CLOTHING• SHELTER
![Page 4: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/4.jpg)
Loreman - 2014
What Is Scarcity
• WANT• Satisfied by consuming a good or service• Satisfy a desire• Wants are UNLIMITED
![Page 5: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/5.jpg)
Loreman - 2014
What Is Scarcity
• Society cannot satisfy all Needs and Wants• WHY?• We have limited resources.
• SCARCITY• The situation that exists because there are not enough resources to meet
human wants.
![Page 6: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/6.jpg)
Loreman - 2014
What Is Scarcity
• ECONOMICS• The study of how people choose to use scarce resources• Examining how individuals, businesses, and government use their scarce
resources• Organizing, Analyzing, and Interpreting Data• Developing theories and economic laws.
![Page 7: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/7.jpg)
Loreman - 2014
Principle 1: People Have Wants
![Page 8: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/8.jpg)
Loreman - 2014
Principle 1: People Have Wants
• Choice is central to the use of scarce resource.• You have a CHOICE about everything.• You NEED FOOD……..you WANT Pizza.
![Page 9: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/9.jpg)
Loreman - 2014
Principle 2: Scarcity Affects Everyone
![Page 10: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/10.jpg)
Loreman - 2014
Principle 2: Scarcity Affects Everyone
• Because resources are limited, decisions have to be made about how to best use them.• As a result, scarcity affects which goods are made and which
services are provided.
![Page 11: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/11.jpg)
Loreman - 2014
Principle 2: Scarcity Affects Everyone
• GOODS: physical objects that can be purchased.• SERVICES: Work that one person performs for payment• Ie. Sales clerk, teachers, nurses, etc.
• CONSUMER: A person who buys goods or services for personal use.• PRODUCER: A person who makes goods or provides services.
![Page 12: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/12.jpg)
Loreman - 2014
Scarcity Leads to 3 Economic Questions
• Since resources are SCARCE, we use 3 Economic Questions to Allocate them:• What Will Be Produced• How Will It Be Produced• For Whom Will It Be Produced
![Page 13: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/13.jpg)
Loreman - 2014
The Factors of Production
• To Understand how societies have answered the first two basic questions, economists have identified the FACTORS OF PRODUCTION
![Page 14: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/14.jpg)
Loreman - 2014
The Factors of Production
• LAND• ALL NATURAL RESOURCES• Sunshine, water, wildlife, etc.
![Page 15: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/15.jpg)
Loreman - 2014
The Factors of Production
• LABOR• All human time and effort that go in to making a product.
• CAPITAL• Resources made and used by people to produce goods and services.
![Page 16: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/16.jpg)
Loreman - 2014
The Factors of Production
• ENTREPRENEURSHIP• Combination of vision, skill, and willingness to take risks that are
needed to create and run a new business.
![Page 17: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/17.jpg)
Economic Choice Today: Opportunity
CostsCh 1, Section 2
![Page 18: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/18.jpg)
Loreman - 2014
Making Choices
• What shapes Economic Choices?• Incentives: benefits offered to encourage people to act in
certain ways.• Utility: benefit or satisfaction gained from a product.• Economize: make decisions according to what you believe is
the best combination of cost and benefit.
![Page 19: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/19.jpg)
Loreman - 2014
Motivations for Choice
• SELF INTEREST• Why do you make one decision over another?• IE…. You choose to go to a movie with one friend over staying at home to
listen to another friend on the phone talk about all of their problems….• SELF INTEREST……THAT’S WHY!
![Page 20: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/20.jpg)
Loreman - 2014
NO FREE LUNCH
![Page 21: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/21.jpg)
Loreman - 2014
NO FREE LUNCH
• Every choice involves costs.• Movie…have to listen to your friend complain the next time
you see them• Telephone Call….you missed the movie.
![Page 22: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/22.jpg)
Loreman - 2014
Trade Offs and Opportunity Costs
• Choices ALWAYS involve costs. For every choice you make, you give something up. This is called a TRADEOFF
![Page 23: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/23.jpg)
Loreman - 2014
Trade Offs and Opportunity Costs
• An Opportunity Cost is the value of the NEXT BEST alternative….or what you give up by making a different choice.
![Page 24: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/24.jpg)
Loreman - 2014
Making a Trade-off
![Page 25: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/25.jpg)
Loreman - 2014
Trade Offs and Opportunity Costs
• Cost Benefit Analysis: • The practice of examining the costs and the expected benefits of a
choice as an aid to decision making.
![Page 26: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/26.jpg)
Loreman - 2014
Trade Offs and Opportunity Costs
![Page 27: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/27.jpg)
Loreman - 2014
Trade Offs and Opportunity Costs
• Marginal Costs and Benefits• MARGINAL COSTS• The cost of using one additional unit of a good or service
• MARGINAL BENEFITS• The benefit of using one additional unit of a good or service
![Page 28: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/28.jpg)
Analyzing Production Possibilities
Ch 1, Section 3
![Page 29: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/29.jpg)
A Budget Line
6543210
02468
1012
DVDs$20
Books$10
12
10
8
6
4
2
02 4 6 8 10 12 14
$120 Budget
Income = $120Pdvd = $20
= 6
Income = $120Pb = $10
= 12
Attainable
Unattainable
Quantity of Paperback Books
Qua
ntit
y of
DVD
s
Attainable & Unattainable Combos
Trade Offs & Opportunity CostsChoiceIncome Change
![Page 30: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/30.jpg)
Loreman - 2014
• Economic Models • Graphical representations of complex economic activities.
• Production Possibilities Curve• A graphical illustration of the impact of scarcity of resources on the
production of goods and services.
![Page 31: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/31.jpg)
Loreman - 2014
Production Possibilities Curve
• Basic Assumptions of a PPC• Resources are fixed• All resources are fully employed• Only two things can be produced• Technology is fixed.
![Page 32: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/32.jpg)
Production Possibilities Chart
AN EFFICIENT ECONOMY MISSES NO OPPORTUNITIESIn this case….along the curve
![Page 33: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/33.jpg)
Loreman - 2014
WHAT WE LEARN FROM PPCs
• LAW OF INCREASING OPPORTUNITY COSTS• Each additional unit costs more to make than the last.
![Page 34: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/34.jpg)
Loreman - 2014
Changing Production Possibilities
• A SHIFT IN THE PPC• The PPC can shift outward if• Additional natural resources• Increased labor• New technology that makes production more efficient
![Page 35: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/35.jpg)
Economic Growth
![Page 36: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/36.jpg)
Loreman - 2014
The Economists ToolboxSec 4
![Page 37: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/37.jpg)
Loreman - 2014
Working with Data
• Statistics• Numerical data or information
• Economic Models• Line Graphs• Bar Graphs• Pie Charts
![Page 38: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/38.jpg)
Loreman - 2014
Microeconomics & Macroeconomics
• Microeconomics• The study of the behavior of the individual or the individual firm.
• Macroeconomics• The study of the behavior of the economy as a whole.
![Page 39: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/39.jpg)
Loreman - 2014
Positive Economics & Normative Economics
• Positive Economics• Scientific Data to back up statements.
• Normative Economics• Value/Opinion based statements
![Page 40: The Economic Way of Thinking Scarcity: The Basic Economic Problem.](https://reader034.fdocuments.net/reader034/viewer/2022050807/5a4d1b727f8b9ab0599b5d01/html5/thumbnails/40.jpg)
Loreman - 2014
The Invisible Hand
• Concept by Adam Smith• The Wealth of Nations• Smith argues: • nations would be wealthier if allowed to engage in free trade.• People act in their own best self interest.