Announcements

• Absent? – Check online for assignments

• Make sure you are checking the current folder on the Economics page, NOT the old Honors Econ page

• DDD– Diapers or $5

• Tomorrow… – Bring something to write with and a half sheet of

paper

• Homework: – Wise decisions over the weekend

Scarcity and Economic Reasoning

Unit 1

<Objectives>• Define each of the productive resources (natural,

human, capital) and explain why they are necessary for the production of goods and services.

• Explain how consumers and producers confront the condition of scarcity by making choices which involve opportunity costs and tradeoffs.

• Explain the important role of the entrepreneur in taking the risk to combine productive resources to produce goods and services.

• Describe how people respond predictably to positive and negative incentives.

Objectives (cont.)

• Explain that voluntary exchange occurs when all participating parties expect to gain.

• Compare and contrast how the various economic systems (traditional, market, command, mixed) answer the questions: – What to produce? – How to produce it? – For whom to produce?

</Objectives>

• Describe how clearly defined and enforced property rights are essential to a market economy.

• Use a production possibilities curve to explain the concepts of choice, scarcity, opportunity cost, tradeoffs, unemployment, productivity and growth.

• Diagram and explain a Circular Flow Model of a market economy

VOCAB

• Natural resources • Human resources • Capital resources• Scarcity • Tradeoffs • Opportunity costs• Incentives• Traditional economy

• Command economy• Market economy • Mixed economy• Decision-making

model

Natural Resources

• Materials or substances such as minerals, forests, water, and fertile land that occur in nature and can be used for economic gain.

Resource Curse Theory

• Also called “Paradox of Plenty”

• Countries with

abundance of a natural resource have less economic growth

• WHY? – Excessive borrowing

because future income is assumed

– Conflict within country or between countries over resources

– Lack of diversification• If all of income depends

on ONE thing, all of income depends on the demand for that thing

Human Resources

• Those individuals who make up the labor force– Employees

• Can also refer to the department within a corporation that handles hiring, firing, employee benefits, etc.

Capital Resources

• Machinery and other equipment used to produce a final product

• Referred to as real capital or economic capital

Financial Capital

• Money used to purchase capital resources

• Tangible assets that can be used as money– Stocks, bonds

• Referred to as capital

What is scarcity?

• Finite, or limited, amount of resources cannot meet unlimited wants and needs of the population

Opportunity Cost

• The benefits you could have received by taking an alternative action

Tradeoff

• Exchange of one thing for another

So what’s the difference?

Opportunity Cost

• What could have been

Tradeoff

• Actual things being exchanged

What is one way consumers and producers might deal with the listed item being scarce?

• Soda– Consumers: Seek alternative beverages– Producers: Raise prices on remaining soda

1. Automobiles

2. Food

3. Land