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Understanding Economics: Scarcity and Resource Allocation

Explore the fundamental concepts of scarcity, resource allocation, and economic systems in Chapters 1 and 2 of the science of economics. Discover the impacts of scarcity on production, the role of factors of production, and the three basic economic questions. Delve into macroeconomics, efficiency, and the Production Possibilities Curve, with a focus on economic decision-making processes and growth strategies. Gain insights into different economic systems, their strengths, weaknesses, and impacts on society.

kathleenmckinnon
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Understanding Economics: Scarcity and Resource Allocation

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  1. Scarcity & the Science of Economics – Chapters 1 and 2 • Do we ever have enough? • List some things that are free:

  2. 1. Air (ok, I tried)

  3. Air in Beijing, China

  4. 2. Sunshine

  5. 3. Trash (in Brazil)

  6. 4. Free Intellectual Property from Internet

  7. I. TINSTAAFL: - There is no such thing as a free lunch. Someone always has to pay. A) The Fundamental Economic Problem: - Scarcity. B) Scarcity Exists because: - societies do not have the resources to produce all the things people want.

  8. Factors of Production orEconomic Resources a) Land - “Gift of nature.” - Payment = Rent b) Labor - People & their skills. - Payment = Wages

  9. c) Capital - “Things that make other things.” - Payment = Interest d) Entrepreneurs - Risk takers seeking profits.

  10. Land, Labor, Capital, & Entrepreneurs

  11. III. Three Basic Economic Questions: - To provide for people’s needs,societies need to make a choice about how to use its limited resources and must answer the following questions A) What to produce? B) How to produce? C. For whom to produce? IV. The Big Question: What does economics mean? - Economics is the study of how societies attempt to satisfy seemingly unlimited human wants through careful use of relatively scarce resources

  12. What is Macroeconomics: -It deals with the economy as a whole, with basic subdivisions such as the government, households, and business sectors of the economy. Macro- economics deals with “the forest, not the trees.”

  13. Full Employment: 1. Of People = 5% unemployment

  14. 2. Full Employment of P & E =85%

  15. VII: Productive Efficiency: - When products are being produced in the least costly way.

  16. Industrial Robots

  17. VIII: Allocative Efficiency: Resources are being used to produce that combination of goods and services societies want most.

  18. PC vs. Typewriter

  19. IX:Full Production: - Producing the “right goods” (allocative efficiency) in the (productive efficiency) “right way.”

  20. Resource Utilization & the PPC I. What is the Production Possibilities Curve? - It is an economic model of choices II. Assumptions of the PPC: a) Efficiency – the eco. is operating at full employment & full production b) Resources are fixed in quantity & quality c) Technology is fixed d) The economy only produces two products.

  21. Guns and butter

  22. A Sample PPC ● z

  23. III. Productive Efficiency & the PPC: A. To be on the curve, a society must achieve both productive & allocative effciency. B. Points inside the curve are attainable, but represent economic inefficiency and unemployment. C. Points outside the curve are not attainable or only temporarily attainable (WWII).

  24. IV. Law of Increasing Opportunity Costs: A. What is the economic reason for the law of Increasing Opportunity costs? Factor Suitability. V. Allocative Efficiency & the PPC: A. Marginal Output. B. Marginal Benefit C. Utility D. Marginal Cost

  25. The most optimal point on the curve below is where the marginal benefit = the marginal cost. Bean & Cheese Tacos MC or Marginal Cost $10 Price 5 2 MB or Marginal Benefit 3 1 2 Quantity (100,000’s)

  26. VI. Law of Diminishing Marginal Utility: What does it mean? As you consume more and more of a product, you get less and less utility. VII. How can we grow the economy? 1. Use new and improved technology 2. Expand the 4 Economic Resources 3. International Trade

  27. The 3 Economic Systems: • Traditional Economy: - Economic activity based on ritual, habit, & custom. a. Strengths: 1. everyone knows their role & life is stable & predictable 2. Little uncertainty over the what, how, & for whom questions b. Weaknesses: 1. discourages new ideas 2. lack of progress leads to lower standard of living.

  28. Amazon Shaman

  29. Face Painting – Papua New Guinea

  30. II. Command Economy: - Central authority makes most economic decisions. a. Strengths: 1. Can change direction drastically in short time. B. Weaknesses: 1. Not designed to meet needs & wants of individuals. 2. large bureaucracy for economic planning 3. Not flexible in dealing with everyday issues 4. Stifles new ideas

  31. Former USSR

  32. III. Market Economy: - People & firms act in own best interest to answer economic questions A. Strengths: 1. Markets can adjust over time 2. Relatively small government interference 3. decentralized decision making 4. High variety/quality of products 5. High consumer satisfaction

  33. B. Weaknesses: 1. Main one is deciding for whom to produce 2. The young, sick, & old have difficult time in pure market system. 3. Markets sometimes fail - Competition (or lack thereof) - resource mobility - availability of information

  34. USA – Market Economy

  35. Trading floor of NYSE

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