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scarcity. Carol Mathias. Scarcity is the problem of economics. Scarcity occurs because people’s wants and needs are unlimited, and the resources needed to produce goods and services are limited. Things that are scarce:. Money is scarce! ( no kidding!). Things that are scarce:.

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Scarcity l.jpg

scarcity

Carol Mathias


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Scarcity is the problem of economics.

  • Scarcity occurs because people’s wants and needs are unlimited, and the resources needed to produce goods and services are limited.


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Things that are scarce:

  • Money is scarce! (no kidding!)


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Things that are scarce:

  • There is only so much oil in the world.


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Things that are scarce:

  • In Japan, 96% of all the land in the country is being used. Land is scarce. Prices for renting space in the Ginza District is $6,000 per square foot.


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Things that are scarce:

  • Elephants are on the critical list of endangered species. Poachers kill them for the ivory, Asian medicines and aphrodisiacs.


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Economics

  • The social science that deals with how society allocates its scarce resources among its unlimited wants and needs.


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Economics

  • Economists advise individuals or societies about choosing which needs to satisfy and how much of our resources we need to satisfy those needs.


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Resources

  • The factors of production:

    • Natural resources

    • Human resources

    • Capital resources

    • entrepreneurship


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There are two branches in Economics:

  • Macroeconomics

  • Microeconomics


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Macroeconomics:

  • The branch of economics that examines the behavior of the whole economy at once.


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One Reason for Economic Troubles in 2006: A NEW chief!

  • Transition Problems!

    • New chief macroeconomist for the US Economy.

    • Change-over from Greenspan to Bernanke.

    • We have economic problems.


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Macroeconomics

  • Alan Greenspan is a macroeconomist. His position at the as Chairman of the Federal Reserve called for him to control the money supply for the economy.

    • He did a GREAT job since 1985 – 2006.


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The New Chairman of the Fed: Ben Bernanke

  • Economics degrees from Harvard and MIT

  • Professor of Economics at Princeton

    • Wrote books, articles, text books on economics.


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The new Chairman of the Federal Reserve: Ben Bernanke

  • Came to Greenspan’s attention with his work on the National Bureau of Economic Research.

    • He recommended him with others to President Bush.



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Bernanke’s BIG concern for the US Economy is:

  • INFLATION!

    • Prices go up faster than our wages do!

    • WHY WOULD THIS BE BAD????


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INFLATION

  • Since July 2005 inflation has caused prices to go up 4.1% (counting food and gas)

    • 2.7% if you take that out.


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Why would inflation be bad for the economy? For you?

  • Jobs?

  • Hours?

  • Pay?

  • Less for spending?

  • Less for saving?

  • More incentive to put your money in the bank.



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IF inflation is happening and employees demand more money – what do businesses have to do?

  • Raise prices!

  • OR cut into profits.

    • Can be QUITE dangerous to not have enough in savings for the bad patches of business!


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What can Bernanke do to stop inflation???? – what do businesses have to do?

  • Interest Rates

  • Money Supply

  • Slow the Velocity of the dollar


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How does Bernanke control the economy? – what do businesses have to do?

  • INTEREST RATES!

  • Interest rates = how much it costs to get money.

  • You ask for a loan of $10,000. The bank charges you 6% - or $600 to get the $10,000!

  • Total payback to bank: $10,600.


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Bernanke orders all banks in the country to RAISE their interest rates …

  • Money costs more to get.

  • Some people may not be able to “afford” money.

    • Less shopping

    • Less travel

    • Less building businesses / houses

    • Buying less cars or goods that depend on interest rates.



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If interest rates are high (which the are) what is going to have to happen if someone wants to sell their house?

  • People have to lower their asking price.

    • Less profit


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Who benefits? have to happen if someone wants to sell their house?

  • Lower prices mean more people might be able to buy a house.

  • Bernanke wants “realistic” prices.


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The Housing Bubble Markets have to happen if someone wants to sell their house?

SOURCE: http://calculatedrisk.blogspot.com/2005/06/when-bubble-will-burst.html


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Higher Interest Rates slow spending have to happen if someone wants to sell their house?

  • What does that mean for wages?

    • Lower wages

    • More hours with less people

    • unemployed



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If prices come down then inflation is tamed. get you to shop?

  • People shop

  • People travel

  • Employment goes up, with lower wages.

    • BUT, if prices are reasonable –


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The economy is fixed! get you to shop?


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If interest rates are high: get you to shop?

  • People SAVE their money.

  • They can’t spend it, so if there is less money available …


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If less money is available … get you to shop?

  • Businesses have to figure out ways to cut costs.

    • Lower wages

    • More efficiency moves

    • “gimmicks” for customers

      • New and Improved!

      • Better service

    • Lower prices


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If prices come down then inflation is tamed. get you to shop?

  • People shop

  • People travel

  • Employment goes up, with lower wages.

    • BUT, if prices are reasonable –



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Microeconomics get you to shop?

  • Microeconomics is the branch of economics that examines the choices and interaction of individuals concerning one product, firm or industry.


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Microeconomics get you to shop?

  • Microeconomists would be interested in why people prefer Coke over Pepsi, or how to make more money on the Stock Market.


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Economists seek answers to: get you to shop?

  • What to produce?

  • How to produce?

  • For whom are they producing for?

    The Three Basic Economic

    Questions!


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Economists…. get you to shop?

  • Try to answer the basic economic questions.

  • Evaluate the options for production.

  • Analyze the potential opportunity costs (trade-offs) and opportunity benefits of any decision.


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Economists use theories to explain their ideas get you to shop?

  • A theory is a model or a simplified description of reality.

    • EXAMPLE OF A THEORY:

    • Wage Differential Theory – The Glass Ceiling


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People gain from voluntary trade. get you to shop?

Everything has a cost.

People choose for good reasons.

Incentives matter.

People create economic systems to influence choices and incentives.

The value of goods or services is affected by people’s choices.

The Economic Way of Thinking


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The Economic Way of Thinking: get you to shop?

  • Economic thinking is marginal thinking.

  • Economic actions create secondary effects.

  • The test of a theory is its ability to predict.


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Lesson Summary get you to shop?

  • The essence of economics is logic.


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Steps of Decision Making Grids get you to shop?

  • Identify the problem.

  • List alternatives for answering the problem.

  • List criteria – what you want to get out of your decision.

  • Rank criteria with alternatives.

  • Make the decision.


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Exchange get you to shop?

  • If consumers buy more Blackberrys over Sprint, what does that tell Sprint?


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Exchange get you to shop?

  • Producers gain information through a process called an EXCHANGE – it which producers and consumers agree to provide one type of item for another.


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Exchange takes one of three forms: get you to shop?

  • Barter

  • Money

  • Credit


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Money has three functions get you to shop?

  • Standardized item that is generally traded for goods and services.

  • A measure of value that allows both producers and consumers to determine and express worth.

  • A store of value that can be saved and used to purchase at a later date.


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Money has VALUE get you to shop?

  • Value is determined by a product’s UTILITY.

    • Usefulness to a person.


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MOST items have DMU get you to shop?

  • Diminished Marginal Utility – usefulness decreases as it is used more and more.


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Other Terms to know: get you to shop?

  • Goods: Physical objects that are purchased.

  • Services – actions or activities done for a fee.

  • Capital Resource – capital goods and money.

  • Capital Goods – buildings, machinery, tools, etc


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Terms to Know get you to shop?

  • Consumer Goods – what people buy.

  • Productivity – level of output that results from a level of input.

  • Efficiency – having the least possible input and get the greatest output.


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Terms to Know get you to shop?

  • Credit – Third form of exchange. People can use item while paying for it.

  • Self-sufficiency – people fulfill needs without outside assistance.


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Terms to Know get you to shop?

  • Interdependence – one area can influence the economy in another sector or the world.


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