h2 h1 scarcity choice opp cost 2011

8/6/2019 H2 H1 Scarcity Choice Opp Cost 2011

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2011 JC1 H2 Economics Syllabus9732

Mdm Shen Qiuhua

Level Head/Economics

Scarcity, Choice and

Opportunity Cost


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What is economics? Social Science


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What Is Economics?

Economics is a social science which studieshow society uses scarce resources whichhave alternative uses to produce goods and

services to satisfy unlimited human wants.


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2 Branches of Economics


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2 Branches of Economics


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Basic Terms of Economics

Consumption is the act ofusing the goods and services

by individuals and households.


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Production is the act ofmaking goods and providing

services by firms.

Basic Te rms o f Ec o nomic s


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Production ofgoods and

services (byfirms)

Consumption ofgoods and

services (byindividuals and

households)

Question for thought:

Will firms produce what is actually wanted byindividuals? Why?



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Basic Te rms o f Ec o no mic s

Economics Goods are tangible thingswhich

vpossess utility or gives satisfaction

vlimited in supply - money value & marketable


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Free Goods are goods that are soabundant in nature that there is morethan enough to meet all human wants.

E.g. sunshine, air and seawater.


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Consumers goods are goods thatgive utility or satisfaction to the onewho demands them.

E.g.: Television set, Cup, Drinks


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Producers goods are goods thatare used to produce consumersgoods.

They are not demanded for their ownsakes.


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Think-pair-share

Student A Explain Student B Present

Question: With the aid of examples, distinguish

between consumers goods and producers goods.


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Consumer durable goods are goodsthat yield their utility over anextended period of time.

E.g. Refrigerator, stove, television set


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Services are intangibles which alsopossess utility, are limited in supplyhave money value and are marketable.

E.g. Education, Transportation,Healthcare, Entertainment


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Basic Economics Concepts (page 10)Limited resources / factors of produ


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Households refer to consumers of goods and services

make decisions on what to buy, where to

buy and how much to buyaim to maximize satisfaction

they are owners of factors of production,

i.e. they sell labour, land and capitalresources to firms and obtain incomefrom firms

Copy


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Firm/ Producera unit of the economy that makes decisions

regarding employment of factors ofproduction and the production of goodsand services

aims to maximize profits

Copy


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Price is the amount of money a consumer hasto pay for a unit of a good or service.

Cost refers to cost of production, i.e. theamount of money it takes to produce one unit ofa good.


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Scarcity

Unlimited humanwants

Limited Resources

(limited in Supply)


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Lecture Review

What are the aims of:A ConsumersB Firms?


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References

Economics , 6th

Edition, John Sloman

Economics Principles and Tools, 4th Edition,OSullivan and Sheffrin, p 3 5.

Principles of Economics, 3rd Edition, N. GregoryMankiw, p 3 4.

Economics for Today, 3rd Edition, Irvin Tucker, p 2 6.


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How Economic Theories are Developed

Model

Assumptions

Implications

Make Predictions& check themagainst facts

REALITYFacts about

economic activityto be explained

When predictions &facts disagree,

develop new model


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How Economic Theories are Developed

Economists observed that peoplebo ught > apple s when its pric e fell.

Variables: Price, quantity demanded

Ceteris Paribus

E.g.: Income level, taste and preferences of

consumers remain unchanged.

State Hypothesis

If the price of applesIf the price of apples

increase, we canincrease, we can

hypothesize thathypothesize that

fewer apples wouldfewer apples would

be sold.be sold.

Empirical analysis: use data to test hypotheses,: use data to test hypotheses,

determine whether or not a hypothesis fits welldetermine whether or not a hypothesis fits well

with the facts.with the facts.

If an economic hypothesis is supported by the data,If an economic hypothesis is supported by the data,

we can tentatively accept as an economic theory.we can tentatively accept as an economic theory.


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Economic Theory

It is an accepted explanation of therelationship between economicvariables.

It consists of 4 components:


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Economic Model

A model means a representation of theactual object. simplified expressions of theories.


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Dependent Variable

Independent

Variable


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Economic Model TablesRelationship between Income & Savings

Income (Y) $ Savings (S) $

100 20

200 40

300 60

400 80


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Economic Model GraphsRelationship between Income & Savings

Figure 1: Relationship between Savings and

Income

O

S S = 0.2Y

Y


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Economic Model

In the real world, relationships are rarelyrestricted to two or three variables.

For advanced theories, economists oftenneed to work with numerous variables whichrequire mathematical models.


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Lecture Review

List out the ways in which aneconomic model can be expressed?


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E.g. Government shouldprovide free education.

E.g.: Slow economic growthwill result in unemploymentrate to increase.


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Think-Pair-Share Activity

Pause and Think!


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Tools for Economic Analysis

Use of Mathematics Mathematical symbols and equations are often used

to present economic theories.

E.g.: DZ = f(PZ, PX, Y, T..)

The demand for a good Z is affected by price of thegood, price of a related good, consumers incomeand taste.


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Working with Graphs

The most useful graph for ourpurposes is one that merelyconnects a vertical line (the Y-

axis) with a horizontal line (theX-axis).


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Exhibit 1: Plotting a GraphY

X-50 -40 -30 -20 -10 10 20 30 5040

-10

-20

-30

-40

-50

50

40

30

2010


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Use of Graphs Linear Relations/ Straight Line Graph Need to know only 2 numbers, the intercept and

the slope.

O

Y

X


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Straight Line Graph

O

Y

X

X & Y has a Positiverelationshiop

O

Y

X

X & Y has a Negativerelationshiop


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Apositive relationshipmeans that two variablesmove in the same direction.

That is, an increase in one variable (practice time) isaccompanied by an increase in another variable(overall score) or a decrease in one variable is

accompanied by a decrease in another variable.


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Exhibit 3: A Positive Relationship

Source: www.singstat.gov.sg


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When two variables move in different directions, there

is anegative relationship between the twovariables.

When one variable rises, the other variable falls.


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A downward sloping line, the demand curve,shows the different combinations of price

and quantity purchased.

The higher you go up on the vertical (price)axis, the smaller the quantity purchased onthe horizontal axis, and the lower you godown along the vertical (price) axis, the

greater the quantity purchased.

E hibi 4 E il D d C


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(1, $25)

(2, $20)

(3, $15)

(4, $10)

(5, $5)

Exhibit 4: Emilys Demand CurveA Negative Relationship

The downwardslope of the curvemeans that priceand quantity are

inversely, ornegatively related.As price falls,quantity

purchasedincreases.

Price

ofC

Ds

$25

20

15

10

5

0 21 3 4 5 6

Quantity of CDs Purchased

Demand Curve

A

B

C

D

E


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Use of Graphs Non-Linear Relations/ Curve The slope of a non-linear curve at any point is

defined as the slope of the line tangent to it at thatpoint. The line tangent can therefore have apositive, negative or zero slope along differentpoints on the curve

Exhibit 9: The Slope of a Nonlinear Curve


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Exhibit 9: The Slope of a Nonlinear Curve


LABOUR FORCE PARTICIPATIONRATE

Ti S i D


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Time-Series Data

Table 2: UK Unemployment, 2000 2003

2000 2001 2002 2003

Unemployment(%)

5.39 5.03 5.11 5.10


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Ti S i D t


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Time-Series Data


Ti S i D t


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Time-Series Data


UNEMPLOYMENT RATE

C S ti D t


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Cross-Section Data

Cross-sectiondata aremeasurementsof a variable for

differenteconomic units,e.g. households,firms,government, at

the same pointin time.

Cross-Section Data


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Cross Section Data


Demographic Structure of Singapore Population

C S ti D t


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Cross-Section Data

Table 3: Income before taxes and benefits, 2000/1Quintile groups of households

Bottom20%

Next20%

Middle20%

Next20%

Top 20%Total

2 7 15 25 51 100


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1990 2000 Average AnnualChange, 19902000(%)Average Household

Income ($)

3,076 4,943 4.9

In 1990 Dollars 3,076 4,166 3.1

Median HouseholdIncome ($)

2,296 3,607 4.6

In 1990 Dollars 2,296 3,040 2.8

HOUSEHOLD INCOME FROM WORK INCURRENT AND 1990 DOLLARS


TABLE 2: RESIDENT HOUSEHOLDS BY INCOME FR WORK


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Monthly Household Income ($)Number (000) Per Cent1990 2000 1990 2000

Total 661.7 923.3 100.0 100.0Below 1,000 105.7 116.3 16.0 12.61,000 1,999 179.3 128.9 27.1 14.02,000 2,999 133.3 136.1 20.1 14.73,000 3,999 86.1 121.3 13.0 13.14,000 4,999 54.0 95.2 8.2 10.35,000 5,999 33.5 75.4 5.1 8.26,000 6,999 21.7 57.5 3.3 6.27,000 7,999 13.8 42.2 2.1 4.6

8,000 8,999 9.5 32.4 1.4 3.59,000 9,999 6.5 23.4 1.0 2.510,000 & Over 18.3 94.6 2.8 10.3



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The Concept of Scarcity Choice &The Concept of Scarcity Choice &


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Recall:Economics is the study of how society usesscarce resources to produce goods and

services to satisfy unlimited wants.

The Concept of Scarcity, Choice &The Concept of Scarcity, Choice &Opportunity CostOpportunity Cost

The Concept of Scarcity Choice &The Concept of Scarcity Choice &


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The central problem ofeconomics is:

The Concept of Scarcity, Choice &The Concept of Scarcity, Choice &Opportunity CostOpportunity Cost

Unlimited Hum an WantsScarcit y of Resources

For both the rich & the poor

there are not enough to meet everyones wants for goods

ScarcitScarcit


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Scarcity exists because human wantsalways exceed what can be produced withthe limited resources and time that naturemakes available.

Human wants > resources

ScarcitScarcityy

Unlimited HumanUnlimited Human


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Due to the desire for even higher levels ofconsumption once a particular level isattained.

Similarly, desires increase over time asold wants are satisfied and new wants arecreated.

WantsWants

Maslow Hierarchy of NeedsMaslow Hierarchy of Needs


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Maslow Hierarchy of NeedsMaslow Hierarchy of Needs

Food forFood for


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Is the concept of Scarcity

the same as the concept ofshortages?

Food forFood forThoughtThought

Basic EconomicBasic Economic


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Basic EconomicProblemProblem Resources

Land EntrepreneurshipCapitalLabour

Goods & Services

Alternative Use

Unlimited HumanWants

Limited

S iS it


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Limited ScarceResources

ScarcityScarcity

UnlimitedUnlimitedHum an WantsHum an Wants

ChoiceChoice

ChoiceChoice


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Choice is the act of selecting

among alternatives

ChoiceChoice

Choices:

VivoCityExpa nd PSA

Condominium

ChoiceChoice


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Choice is the act of selecting among

alternatives

Choices:

Integrated

Resort

Disneyland

Choice


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ChoiceChoice

What to produce ? AnWhat to produce ? An


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pExample:Example:

How m uch of each good must be produced

Overproduct ion Underproduct ion


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Producer will st rive to:vUse the least -cost method of production

Why?vMaxim izes the level of output orvMinim izes wastage of resources.

For Whom to ProduceFor Whom to Produce


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For Whom to ProduceFor Whom to Produce

Scarcity The Central EconomicScarcity The Central Economic


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Limited ScarceResources

yProblemProblem

Unlimited Human WantsUnlimited Human Wants

ChoiceChoice

Opportunity CostsOpportunity Costs

OpportunityOpportunity


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The opportunity cost of anyaction is the next best alternative

foregone

pp ypp yCostCost

OpportunityOpportunity


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If you cannot have everything you want,then you have to choose among thealternatives.

The next best alternative which you forgois the opportunity cost of the thing youchose.

There are trade-offs in every choice wemake

pp ypp yCostCost

O t it C tOpportunity Cost


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Opportunity costs measures the realcost of the activity.

Such costs may but do not alwayscoincide with money expenditure ofthe activity.

Opportunity CostOpportunity Cost

Example 1Example 1


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Example 1Example 1

Tom has $2 to spend on either bread orTom has $2 to spend on either bread orchocolate.chocolate.

If he decides to buy bread instead ofIf he decides to buy bread instead of

chocolates, the opportunity cost of buyingchocolates, the opportunity cost of buyingthe bread is the amount of chocolates thatthe bread is the amount of chocolates thathe could have bought with the $2,he could have bought with the $2, not thenot the$2 spent.$2 spent.

Think-Pair-ShareThink-Pair-Share


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ActivityActivity

Give an example ofGive an example of

opportunity cost that you faceopportunity cost that you facein daily life?in daily life?

HumanWants

Resources


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Wants

UnlimitedVary in Importance

Unlimited amts of gd& srvcs desired

Limited amt of gds & srvsproduced at any one time

Limitedhv alternative uses

Can never satisfy all ofsocietys unlimitedwants with limited

resources

Scarcity

Choice

Opportunity Costs

Exceptional Cases whereExceptional Cases where


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Free goods

Free goods can be defined as goods with zero

opportunity cost. They are abundant in supply.Examples are air, sunlight, snow and rain-water.

Nothing is sacrificed or forgone.

Exceptional Cases whereExceptional Cases whereOpportunity Costs are ZERO:Opportunity Costs are ZERO:

Exceptional Cases whereExceptional Cases where


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Unemployed resources

There could be periods where substantialamounts are left idle due to low demand forthem.

When the originally unemployed resources are

put to use later, there is no giving up of theproduction of another good now.

Exceptional Cases whereExceptional Cases whereOpportunity Costs are ZERO:Opportunity Costs are ZERO:

Lecture ReviewLecture Review


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Lecture ReviewLecture Review

The basic economic problem is thatof __________. ___________ arelimited in supply relative to ourvirtually ________________ wants

for the goods sand services thoseresources can produce. All societiesmust therefore _________ whichgoods and services to produce,

incurring___________________________ interms of next best alternative goodor service foregone

scarcity

choose

unlimited

Resources

opportunity cost

h2 h1 scarcity choice opp cost 2011

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