(Con)AP Micro 1.1 Scarcity

Scarcity: The idea that resources are limited (water, oil, land, etc.) and that we need to make choices about how to allocate them

Types of Scarcity

1. Absolute: Physical limitations of resources

2. Relative: Value we place on resources

   Diamonds are not absolutely scarce, but society places a high value on them, therefore they are relatively scarce.

Free Resource: A resource that everyone in a population can effectively utilize infinitely (e.g. air)

Scarce Resources vs. Free Resources

Caviar: Scarce bc it takes lots of time and effort to get it and thus you pay a decent price for it

Labor: Scarce; if it were free, then people would have to be willing to and able to work infinitely

Oppurtunity Cost: The value of what we give up when we choose one option over another

Supply and Demand: When something is scarce, price goes up. —> Encourages people to use a resource more efficeintly, or look for substitues

Different economic systems will handle scarcity differently. In capitalism, prices and market forces allocate resources while a planned economy(e.g. communism), the government will determine how to allocate resources.

Adam Smith statement: PRO CAPITALIST
Essentially he is stating that by acting in ones self interest are often going to do more for society than when they actively go attempt to improve society.

FOUR FACTORS OF PRODUCTION: The 4 categories that encompass everything needed to create a product

1. Land (aka Natural Resources)

2. Labor

3. Capital: Something produced to produce other things

   Such as tools, a building, machinery, etc.

4. Entrepreneurships (or technology): Putting together the other factors of production to create a product

Products:

Capital goods: used to produce other things

Consumption goods: just used(happiness, pleasure, recreational, etc.), not used to produce other things

SCARCITY AND RIVALRY:

Scarce Good: Limited Resource, potentially unlimited want for a good—>creates scarcity

Rival Good: When one person uses it, it limits the ability for others to use simultaneously (e.g. using a hammer rivals ur ability to use this hammer simultaneously)

Spectrum of nonrival-rival goods

ECONOMIC MODELS: based on imperfect assumptions

By making simplifying assumptions about a subject, you can come up with models (Rules, laws, experiments, graphs, data, etc.)

E.g. Assuming that you only trade off between two things and everything else is the same

NORMATIVE AND POSITIVE STATEMENTS:

Normative: Regarding opinion, ethics, or morals; can’t be tested

• Paying nonworking people, even though they could work, is wrong and unfair

• The government should raise taxes on the wealthy to pay for helping the poor

Positive: In theory, can be tested(even if tests come back unconclusive)

• Programs like welfare reduce the incentive for people to work

• Raising taxes on the wealthy to pay for government programs grows the economy

• Raising taxes on the wealthy slows economic grwoth

NOTECARDS:
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.