Lesson 1: Scarcity

What is scarcity in microeconomics?

Scarcity refers to the idea that resources are limited, and that we need to make choices about how to allocate them.

What are the two types of scarcity?

Absolute scarcity (physical limitations) and relative scarcity (the value we place on resources).

What is absolute scarcity?

The physical limitations of resources, such as land, water, and oil.

What is relative scarcity?

The value we place on resources, such as diamonds, which makes them scarce even though they are not absolutely scarce.

Why is scarcity important in microeconomics?

It underpins the entire field, and helps us understand how people make decisions in the face of limited resources.

What is opportunity cost?

The value of what we give up when we choose one option over another.

How do supply and demand interact with scarcity?

When resources are scarce, prices tend to go up, which in turn affects supply and demand.

How do prices help allocate scarce resources?

When prices go up, people tend to use resources more efficiently or look for substitutes.

What are some incentives that can be used to influence decisions in the face of scarcity?

Prices, taxes, subsidies, and regulations can all be used to incentivize people to use resources more efficiently.

How do different economic systems handle scarcity differently?

In a capitalist system, prices and market forces are used to allocate resources, while in a planned economy, the government might step in to make those decisions.