Lecture 1 - Scarcity
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1. Economics is defined as the study of how humans make choices with scarce resources. 2. The fundamental economic problem is that resources are limited while human wants are unlimited, meaning not all wants can be satisfied. 3. Something is considered scarce if people are willing to sacrifice or pay a price to obtain it, with scarcity increasing as the price rises. Scarcity is different from rarity, as diamonds are not rare but are very scarce.
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Lecture 1 - Scarcity
- 1. L E C T U R E 1 - S C A R C I T Y
- 2. T H E D E F I N I T I O N O F E C O N O M I C S • What is Economics? • The science of choice • The study of the allocation of scare resources • An economic way of thinking
- 3. I F I O F F E R Y O U $ 1 0 0 . • Will you accept a $1,000 more? • What about $100,000? • Would $1,000,000 satisfy you? • At what point will you receive enough money that if I offer you more, you won’t accept it?
- 4. S C A R C I T Y A N D T H E F U N D A M E N TA L E C O N O M I C P R O B L E M • Of course, you want as much $$$ as possible • The Law of Scarcity: Unlimited Wants and Limited Availability • People will always want more, even if their immediate needs are satisfied. • What economics attempts to do is study human behavior as a scientifically to project future behavior patterns. However! Humans often act irrationally so their purchasing habits are often difficult to predict. • Q: So how do we know that something is scare?
- 5. S O H O W D O W E K N O W T H AT S O M E T H I N G I S S C A R C E ? • 1. People are willing to sacrifice in order to get it. • 2. Oftentimes this means there is a price. • 3. The higher the price, the more scarce it is.
- 6. S C A R C I T Y ≠ R A R I T Y • Diamonds are not rare, but are very scarce • One-clawed lobsters are more rare but are not as scarce as two-clawed lobsters. • Explain?
- 7. T R A D E - O F F S ( C H O I C E ) • Because things are limited we are often faced with making trade-offs, or choices. • All choices have a cost. • Therefore, people often look at incentives as a way to justify a choice. • An Incentive - is a reason for doing something. • Positive incentives are benefits you gain from making a choice