Economics

The study of how scarce, or limited resources are used to satisfy

people’s unlimited material wants and needs. How people make decisions in a world of scarcity.

Scarcity

There are not enough, nor can there ever be enough, goods and services to satisfy the wants and

needs of all individuals, families, and societies.

Unlimited wants

Limited resources to satisfy wants

Choose between alternatives

Scarce GoodsFood (bread, milk, meat, eggs, vegetables, coffee, etc.) Clothing (shirts, pants, blouses, shoes, socks, coats, sweaters, etc.) Household (tables, chairs, rugs, beds, goods dressers, television sets, etc.)

Space exploration

Education

National defense

Recreation

Leisure time

Entertainment

Clean air Pleasant (trees, lakes, rivers, environment open spaces, etc.)

Pleasant working conditions

Limited Resources

Land (various degrees of fertility)

Natural (rivers, trees, minerals, Resources oceans, etc.)

Machines and other human-made physical resources

Non-human animal resources

Technology (physical and scientific “recipes” of history)

Human (the knowledge, skill, resources and talent of individuals)

Scarcity and Choice

Tradeoffs

Choices involve tradeoffs and consequences.

- give up to get

It involves a value judgment.

- decide the relative importance of alternatives

Opportunity Cost

Involves evaluating the costs and benefits of choices.

What must be given up to get one more unit of another good or

service

There is no such thing as a free lunch.

It also means doing the job they were

trained or designed to do

Productive Efficiency

Goods and services are produced at the lowest cost.

or

Equity

Should people receive based on their relative need for the goods and

services?

Should every person receives as much as every other person?

or

Should people be rewarded for their contribution to the production?

Factors of Production1. 2.

3.

4.

Land

Labor

Capital

Entrepreneurship

Payment to Factors1. 2.

3.

4.

Rent

Wages and Salaries

Interest

Profits

1. Determining variables to study

Developing Economic Theories

PricesIncomesAge groupsPopulationGovernment actions

Independent vs Dependent -

Methods

2. Make Assumptions

eg. Ceteris Paribus (other things being equal)

- only consider changes to one variablelike

Pricesee Independent variables a little

later

DATA3. Gather data

4. Study the data

“Need facts to support theories and theories to make sense of facts.”

a. InductiveUse facts to develop a modelTake a survey and study the results

b. DeductiveSee if the facts support a hypothesisStart with a theory and see if facts support it

5. Make Conclusion

a. Principle - relationship

b. Theory – string of principles

c. Law –theory proven to hold true most times

CONCLUSIONS

policy

6. Set a Policy.

The cause of most

disagreement

1. As a theory or law.

The Law of DemandAs the price of a good rises, the quantity

people will want to buy (demand) will fall.

Presenting results

The Law of Supply

As the price of a good rises, the quantity producers will want to sell (supply) will rise.

Illustrating the relationship between 2 variables

Eg. Price and Quantity

2. As a picture.

Presenting results

Selling Quantity Price Demanded

$ 3$ 2$ 1

$ 410

254060

15$ 5

Price

Quantity

$6

$5

$4

$3

$2

$1

10 20 30 40 50 600

Demand

Downsloping left

-Plot the pointsGraphing:

-Connect the dots

to right

Demand

2. Dependent Variable - Quantity, workers, - X axis

1. Independent Variable - Price, wages, $$$$$ - Y axis

Economic graphs

2. Inverse Relationship - Graph slopes down from left to

right

1. Direct Relationship - Graph slopes up from left to right

Economic graphs

1.All resources are fixed in quantity

2.All resources are fully employed

3.Existing technology is fixed.4.You have a choice of 2 goods to

produce

Production possibilities

Assumptions

Pizzas (10,000)0 1 2 3 4Road Pavers 10 9 7 4 0

Production possibilities

Table

Opportunity Costs?

Result of combination:

A- B- C- D-

Production possibilitiesCurve (or Frontier)

Road

Pavers

Cap

ital g

ood

PizzaConsumer good

109

7

4

1 2 3 40

B

A

D

C

Future Growth

Less Growth

Unemployment

Use up resources

1. When an economist states that a good is scarce, he means that:a. Production cannot expand the availability of the good.b. It is rare.c. Desire for the good exceeds the amount that is freely

available from nature.d. People would want to purchase more of the good at any

price.

2. The highest valued alternative that must be given up in order to choose an action is called its

a. opportunity cost.b. utilityc. scarcityd. ceteris paribus