economics the study of how scarce, or limited resources are used to satisfy people’s unlimited...
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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.
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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.
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Unlimited wants
Limited resources to satisfy wants
Choose between alternatives
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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
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Tradeoffs
Choices involve tradeoffs and consequences.
- give up to get
It involves a value judgment.
- decide the relative importance of alternatives
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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.
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It also means doing the job they were
trained or designed to do
Productive Efficiency
Goods and services are produced at the lowest cost.
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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?
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Factors of Production1. 2.
3.
4.
Land
Labor
Capital
Entrepreneurship
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Payment to Factors1. 2.
3.
4.
Rent
Wages and Salaries
Interest
Profits
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1. Determining variables to study
Developing Economic Theories
PricesIncomesAge groupsPopulationGovernment actions
Independent vs Dependent -
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Methods
2. Make Assumptions
eg. Ceteris Paribus (other things being equal)
- only consider changes to one variablelike
Pricesee Independent variables a little
later
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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
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5. Make Conclusion
a. Principle - relationship
b. Theory – string of principles
c. Law –theory proven to hold true most times
CONCLUSIONS
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policy
6. Set a Policy.
The cause of most
disagreement
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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.
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Illustrating the relationship between 2 variables
Eg. Price and Quantity
2. As a picture.
Presenting results
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Selling Quantity Price Demanded
$ 3$ 2$ 1
$ 410
254060
15$ 5
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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
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2. Dependent Variable - Quantity, workers, - X axis
1. Independent Variable - Price, wages, $$$$$ - Y axis
Economic graphs
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2. Inverse Relationship - Graph slopes down from left to
right
1. Direct Relationship - Graph slopes up from left to right
Economic graphs
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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
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Pizzas (10,000)0 1 2 3 4Road Pavers 10 9 7 4 0
Production possibilities
Table
Opportunity Costs?
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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
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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