Learning Objectives n n Evaluate whether even affluent
Learning Objectives n n Evaluate whether even affluent people face the problem of scarcity Understand why economists consider wants but not needs
Learning Objectives n n Explain why the scarcity problem induces individuals to consider opportunity costs Discuss why obtaining increasing increments of any particular good entails giving up more and more units of other goods
Learning Objectives n n Explain why society faces a trade-off between consumption of goods and capital goods Distinguish between absolute and comparative advantage
Scarcity n Scarcity ¨ Occurs when the ingredients (resources) for producing things that people desire are insufficient to satisfy all wants
Scarcity n What scarcity is NOT: ¨ It is not a shortage.
Scarcity n Production ¨ Any activity that results in the conversion of resources into products that can be used in consumption n Resources or Factors of Production ¨ Inputs that are used to produce things that people want
Scarcity n Resources or Factors of Production ¨ Land ¨ Labor ¨ Capital ¨ Entrepreneurship
Scarcity n Resources or Factors of Production ¨ Land n Natural resources or the gifts of nature ¨ Labor n The human resource
Scarcity n Resources or Factors of Production ¨ Capital n Physical Capital ¨ n All manufactured resources Human Capital ¨ Accumulated training and education of workers
Scarcity n Resources or Factors of Production ¨ Entrepreneurship Person who organizes, manages, and assembles the other resources n Risk taker n Maker of basic business policy decisions n
Scarcity n Goods ¨ Goods are all things from which individuals derive satisfaction and are, thus, valued. n Services ¨ Tasks that are performed for someone else
Scarcity, Choice, and Opportunity Cost n Opportunity Cost ¨ The highest-valued, next-best alternative that must be sacrificed to attain something or satisfy a want
Scarcity, Choice, and Opportunity Cost In economics, cost is always a forgone opportunity.
Scarcity, Choice, and Opportunity Cost n Questions ¨ What is the opportunity cost of attending this economics class? ¨ What is the opportunity cost of attending a Dave Matthews concert? ¨ What is the opportunity cost of increasing research for a vaccine?
Scarcity, Choice, and Opportunity Cost Limited Resources & Unlimited Wants Scarcity Choices Opportunity Cost
The World of Trade-Offs n Opportunity cost graphically: ¨ The production possibilities curve (PPC) represents all possible combinations of total output that could be produced. ¨ Along the production possibilities curve = efficiency
Production Possibilities Curve (PPC)
Production Possibilities Curve (PPC) n Questions ¨ What would happen to the production possibilities curve if you spent more time studying? ¨ What would happen to the potential grades? ¨ Is it possible that the trade-off might not be constant?
The Choices Society Faces n Production possibilities assumptions ¨ Resources ¨ Production, are fully employed Resources, and Technology do not change over the time period.
Society’s Trade-Off Between Digital Cameras and Pocket PCs
Society’s Trade-Off Between Digital Cameras and Pocket PCs
The Law of Increasing Relative Costs
The Choices Society Faces n Law of Increasing Relative Costs ¨ As society attempts to produce more of a good, the opportunity cost of additional units of that good generally increases.
The Choices Society Faces n Question ¨ How does the specialization of resources influence the shape of the production possibilities curve?
Economic Growth and the Production Possibilities Curve n Economic growth ¨ Increases the production possibilities of digital cameras and Pocket PCs ¨ Occurs over a period of time ¨ Is illustrated by an outward shift of the production possibilities curve
The Choices Society Faces n Technology ¨ Society’s pool of applied knowledge concerning how goods and services can be produced ¨ Improving resource productivity
Economic Growth Allows for More of Everything
The Trade-Off Between the Present and the Future n n The PPC can be used to illustrate the trade-off between present and future consumption. Consumption ¨ The use of goods and services for personal satisfaction
Capital Goods and Growth Capital Goods per Year • Consumer goods – Goods produced for personal satisfaction • A Capital goods – Goods used to produce other goods B 4 5 Consumption Goods per Year ($ trillions)
Future growth as a result of A on the left-hand diagram Recreation per Year Capital Goods and Growth A Today B 4 5 Consumption Goods per Year ($ trillions) Food per Year
Capital Goods and Growth Recreation per Year Capital Goods per Year Future growth as a result of C on the left-hand diagram C A Today B Consumption Goods per Year ($ trillions) Food per Year
Capital Goods and Growth Recreation per Year Capital Goods per Year Future growth as a result of A on the left-hand diagram A Today B 4 5 Consumption Goods per Year ($ trillions) Food per Year Recreation per Year Capital Goods per Year Future growth as a result of C on the left-hand diagram C A Today B Consumption Goods per Year ($ trillions) Food per Year
Capital Goods and Growth n Observations ¨ Forgo consumption goods to produce capital goods ¨ Increase in capital goods stimulates economic growth
Capital Goods and Growth n Observations ¨ In the future the economic system can produce more consumer goods ¨ An increase in capital goods will lead to a higher rate of economic growth in the future
Why So Many People Don’t Vote
- Slides: 35