Scarcity

Scarcity

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

• absolute scarcity refers to the physical limitations of resources

  • land, water, oil

• relative scarcity refers to the value we place on resources

  • ex: diamonds are not absolutely scarce but we as a society value them highly, so they are relatively scarce

• opportunity cost is the value of what we give up when we choose one option over another

• when something is scarce, prices intend to go up → encourages people to use resources more efficiently or look for substitutes

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

• in capitalist system: prices and market forces are used to allocate resources

• planned economy: govt may step in to determine how resources are used

Introduction to Economics

• Microeconomics is the factor to make decisions/allocations of scarce resources

• Macroeconomics is the study of what happens to an aggregate of an economy

Four Factors of Production

• Land: refers to all natural resources used in the production of goods and services

  • ex: minerals, water, and forests

• Labor: the human effort used in the production process, which includes both physical and mental work

  • ex: workers in factories, teachers in classrooms, and engineers in design

• Capital: production that is able to produce other things

  • ex: machinery, buildings

• Entrepreneurship: putting together all the other factors of production so you can actually produce things

  • interchangeable with technology when referring to four factors of production

• two types of things that could be produced are consumption goods and capital goods

  • Consumption goods: items that are used by consumers for personal use, such as food and clothing

  • Capital goods: goods that are used to produce other goods or services, like machinery and tools

Scarcity and Rivalry

• rival goods: if one person is consuming it then it limits the ability for others to use

  • land, housing

Economic Models

• you cannot perfectly predict what everybody does in the economy so simplified models are used

• assumption that everyone is rational

Normative and Positive Statements

Normative Statement: matter of opinion, matter of ethics, something that someone thinks is how the world should be

Positive Statement: something that can be tested