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Company

LOGOSCARCITY, WANTS, & NEEDS

Compiled by Vela Moyo

Economic Questions

1. What to produce?1. What to produce?

2. How to produce? 2. How to produce?

3. For whom? 3. For whom?

Basic Economic Concepts

CIRCULARFLOW OF

ECONOMICLIFE

CHOICE TRADEOFF

OPPORTUNITYCOST

PRODUCTION-POSSIBILITYFRONTIER

SCARCITY

UNLIMITED WANTS &

NEEDS

Realities

Scarcity, however, does not imply that the amount of resources or the state of technology is fixed.

Scarcity, however, does not imply that the amount of resources or the state of technology is fixed.

Scarcity limits the total output from the economy

Scarcity limits the total output from the economy

There are not enough resources in the world to satisfy the unlimited wants and needs of all people

There are not enough resources in the world to satisfy the unlimited wants and needs of all people

CHOICE

In a free market economy, CHOICE, is at the very heart of

the systemCONSUMER/HOUSEHOLD BUSINESS

…must choose among a variety of goods and services, not of all which can be bought, given a limited budget, between spending now or saving for later; and between hours of work and hour of leisure

…in deciding what to produce and how to produce it, must choose among the available resources – land, labor, capital, and entrepreneurship.

Trade Off

…it is a choice between alternatives uses for a given quantity of resources.

…using one resources for one purpose means that the same resources can not be used for another purpose

The allocation of 30% of the budget for defense means that were resources were drawn away from education, making the nation’s defense capability stronger at the expense of improved education.

…in a country with a weak economy or a lower standard of living ,most trade off decision are not made by the government but by individual consumers and producers

…usually consist of reallocating the factors of production used to produce the goods chosen by the consumer

The World of Scarcity“You can’t always get what you want!”

we live in a world of SCARCITY:

society has limited resources, therefore it cannot produce all goods and services that people wish to have.

wants always exceed the resources to satisfy them

Efficiency calls for the effective use the limited resources to satisfy people’s wants

“when it cannot make anyone economically better off without making someone else worse off

Scarcity is Different from Shortage

SCARCITY embodies the economic

truism that economic resources are limited

It is an economic phenomenon which is permanent in nature

SHORTAGE temporary situation It occurs when the supply

of goods and services runs low resulting from a greater demand on the part of the consumer.

Unlimited Wants and Limited Income

What are the things that you would like to have?

as you think about this question more seriously, you will discover that the list is almost endless…

it is natural for you to want something more than you have

if you do not want something more than you have, you are probably dead

Limited Resources

scarcity of resources is the main reason why we cannot have everything we want

Source: National Geographic, October 1998

these must be apportioned in such a way that they will provide the greatest satisfaction to those who need them

How are you helping make decisions in the allocation of goods and services in simply being a consumer, give the fact that we have limited resources and man have unlimited wants?

Difference Between Wants and Needs

WANTS

refers to all things that people consume if their income were unlimited

every has unlimited wants which cannot be wholly satisfied because of limited resources

NEEDS undefinable from the

standpoint of an economist

however, the term need is used very casually in most conversation

what people meant, usually, is that they want something they don’t have.

Reality in the world of scarcity: Every want that ends up being satisfied causes one or more wants to remain unsatisfied

Company

LOGOThe Economic Problem: Scarcity and Choice

• Natural Resources – the resources from nature that are used in production, including land, raw materials,

and natural process• Capital Resources – the processed materials,

equipment, and buildings used in production; also

known as capital• Human Resources – the efforts of people involved

in production, including labour and

entrepreneurship

• Economic systems are the basic arrangements made by societies to solve the economic problem. They include:– Command economies– Laissez-faire economies– Mixed systems

Economic Systems

• In a command economy, a central government either directly or indirectly sets output targets, incomes, and prices.

• In a laissez-faire economy, individuals and firms pursue their own self-interests without any central direction or regulation.

Economic Systems

• The central institution of a laissez-faire economy is the free-market system.

• A market is the institution through which buyers and sellers interact and engage in exchange.

Economic Systems

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

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Prepared by: Fernando Prepared by: Fernando Quijano and Yvonn QuijanoQuijano and Yvonn Quijano

Other thoughtsOther thoughtsScarcity and ChoiceScarcity and Choice

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

What is Production?What is Production?

• ProductionProduction is the process by which resources is the process by which resources are transformed into useful forms.are transformed into useful forms.

• ResourcesResources, or , or inputsinputs, refer to anything , refer to anything provided by nature or previous generations provided by nature or previous generations that can be used directly or indirectly to satisfy that can be used directly or indirectly to satisfy human wants.human wants.

• Capital resourcesCapital resources

• Human resourcesHuman resources

• Natural resourcesNatural resources

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

Three Basic QuestionsThree Basic Questions

• The mechanics of decision making in a larger economy The mechanics of decision making in a larger economy are more complex, but the type of decisions that must are more complex, but the type of decisions that must be made are nearly identical.be made are nearly identical.

• All societies must decide:All societies must decide:

• WhatWhat will be produced? will be produced?

• HowHow will it be produced?will it be produced?

• WhoWho will get what is produced? will get what is produced?

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

Three Basic QuestionsThree Basic Questions

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

Specialization, Exchange and Specialization, Exchange and Comparative AdvantageComparative Advantage

• David Ricardo developed the David Ricardo developed the theory of theory of comparative advantagecomparative advantage to explain the to explain the benefits of specialization and free trade. benefits of specialization and free trade. The theory is based on the concept of The theory is based on the concept of opportunity cost:opportunity cost:

• Opportunity costOpportunity cost is that which we give is that which we give up or forgo, when we make a decision or up or forgo, when we make a decision or a choice.a choice.

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

Specialization, Exchange and Specialization, Exchange and Comparative AdvantageComparative Advantage

• According to the According to the theory of theory of competitive advantage,competitive advantage, specialization and free trade will specialization and free trade will benefit all trading parties, even benefit all trading parties, even those that may be absolutely more those that may be absolutely more efficient producersefficient producers..

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

Capital Goods and Consumer GoodsCapital Goods and Consumer Goods

• Consumer goodsConsumer goods are goods are goods produced for present produced for present consumption.consumption.

• Capital goodsCapital goods are goods used are goods used to produce other goods or to produce other goods or services over time.services over time.

© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair

The Economic ProblemThe Economic Problem

• The economic problemThe economic problem:: Given scarce resources, Given scarce resources, how, exactly, do large, complex societies go about how, exactly, do large, complex societies go about answering the three basic economic questions?answering the three basic economic questions?

• Economic systemsEconomic systems are the basic arrangements are the basic arrangements made by societies to solve the economic problem. made by societies to solve the economic problem. They include:They include:

• Command economiesCommand economies

• Laissez-faire economiesLaissez-faire economies

• Mixed systemsMixed systems

AND SOME BASIC CONCEPTS

ANG SAGOT SA TANONG…

WHY DO WE HAVE TO MAKE A CHOICE?

To reach a goal /move forward/ bring change in life /Give us purpose in life/give us a good future and a better life

& success

Gift of God/ We have the freedom/right to choose/ inevitable/ to make us responsible & independent persons/ choices reflect

our values or morals/ you can not have it all/everything

To know what is wrong or right and learn from them/live with The consequences of decision/Be on the right track/ path

GOAL – Attend classes

today

You CAN NOT DO ALL These activities

At the same time!

Our TIME is LIMITED or

SCARCE

ECON_FACT 1

SCARCITY OF RESOURCES FORCES US TO MAKE A CHOICE!

Scarcity is knowing that life is this __ OR that __ (Yes!) and not this__ AND__ that (X)

SPEND MONEY

MONEY ISNEVER

ENOUGH…ALWAYSSCARCE!

SAVE MONEY

OPPORTUNITY COSTOPPORTUNITY COST

The cost of something given up in order to obtain a good

The next best alternative that is forgone when we make a decision or a choice

Cost of the tradeoff is called

OPPORTUNITY COST

LOOKING THROUGH THE EYES LOOKING THROUGH THE EYES OF SCARCITY…OF SCARCITY…

Choosing one over the other course of action would cost you to give up the next best alternative

ECONOMIC WAY OF THINKING means…

Always thinking of the OPPORTUNITY COST OF

THE DECISION!

ECONOMIC WAY OF THINKING means…

Choosing the action or things that will give more

extra or marginal benefits

Scarcity and its roleScarcity and its role

Introduction-:Introduction-: Scarcity means “of limited

availability”. E.g. During Famine period, food is

‘scarce’ i.e. Scarcity of food.

Scarcity is a fundamental economic problem of having humans who have unlimited wants & needs in world of limited resources.

When will a resource be consider as ‘SCARCE’?

A resource is considered scarce when its availability is not enough to meet its demand .

Factors responsible for Scarcity of resources-:

1) Limited supply of resources (natural Scarcity)for example,

scarcity of water in arid areas like deserts,

scarcity of food in famine prone areas.

Cont’Cont’

2) Limited capabilities of technology or human skill (for example, those needed for enhanced production.)

Cont’Cont’

3) Sometimes the insufficiencies are a result of poor planning and execution(Artificial scarcity).e.g.

In arid areas, proper planning is required for proper supply of water.

Is it Possible to Have no Scarcity??

If proper planning & techniques are used for utilization and supply of insufficient resource, then condition of its to be scarce ‘minimizes’.

If ‘needs’=‘have’

Impact of Scarcity on Market?

If something is scarce - it will have a market value.

It will result in inflation.

If the supply of a good or service is low, the market price will rise, providing there is sufficient demand from consumers. Whereas when there is excess supply in a market, we expect to see prices falling. For example,

If we talk about services, IITians vs. Engineer from UPTU colleges.

References References Names:Names:

Shubham SinghalAkash BhartiFernando QuijanoYvonn QuijanoMr. Rey Belen

Web-links Web-links

http://www.slideshare.net/ssinghalcool/scarcity-of-resources-9607344?qid=b2bee804-3377-4212-8ce1-c2637e9a84db&v=qf1&b=&from_search=19

http://www.slideshare.net/ssinghalcool/scarcity-of-resources-9607344?qid=a69dd2f3-fc79-44e1-87fb-a3008ed700a5&v=qf1&b=&from_search=30

http://www.slideshare.net/reyzter/scarcity-wants-needs?qid=0fe75ae1-812c-44d9-befc-4a8d4b230bce&v=qf1&b=&from_search=44

http://www.slideshare.net/JeanBandoja/scarcity-and-choice-1st-term-2011?qid=1c0499e3-99da-45f3-b3b5-45b9eb9b78bb&v=qf1&b=&from_search=7

http://www.slideshare.net/sap/optimizing-resources-amid-increasing-scarcity?qid=1c0499e3-99da-45f3-b3b5-45b9eb9b78bb&v=qf1&b=&from_search=11

The EndThe End

Thank You