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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

scarcity

Carol Mathias

scarcity is the problem of economics
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
Things that are scarce:
  • Money is scarce! (no kidding!)
things that are scarce4
Things that are scarce:
  • There is only so much oil in the world.
things that are scarce5
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.
things that are scarce6
Things that are scarce:
  • Elephants are on the critical list of endangered species. Poachers kill them for the ivory, Asian medicines and aphrodisiacs.
economics
Economics
  • The social science that deals with how society allocates its scarce resources among its unlimited wants and needs.
economics8
Economics
  • Economists advise individuals or societies about choosing which needs to satisfy and how much of our resources we need to satisfy those needs.
resources
Resources
  • The factors of production:
    • Natural resources
    • Human resources
    • Capital resources
    • entrepreneurship
there are two branches in economics
There are two branches in Economics:
  • Macroeconomics
  • Microeconomics
macroeconomics
Macroeconomics:
  • The branch of economics that examines the behavior of the whole economy at once.
one reason for economic troubles in 2006 a new chief
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.
macroeconomics13
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.
the new chairman of the fed ben bernanke
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.
the new chairman of the federal reserve ben bernanke
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.
bernanke s big concern for the us economy is
Bernanke’s BIG concern for the US Economy is:
  • INFLATION!
    • Prices go up faster than our wages do!
    • WHY WOULD THIS BE BAD????
inflation
INFLATION
  • Since July 2005 inflation has caused prices to go up 4.1% (counting food and gas)
    • 2.7% if you take that out.
why would inflation be bad for the economy for you
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.
if inflation is happening and employees demand more money what do businesses have to do
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!
what can bernanke do to stop inflation
What can Bernanke do to stop inflation????
  • Interest Rates
  • Money Supply
  • Slow the Velocity of the dollar
how does bernanke control the economy
How does Bernanke control the economy?
  • 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.
bernanke orders all banks in the country to raise their interest rates
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.
slide26
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
who benefits
Who benefits?
  • Lower prices mean more people might be able to buy a house.
  • Bernanke wants “realistic” prices.
slide28
The Housing Bubble Markets

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

higher interest rates slow spending
Higher Interest Rates slow spending
  • What does that mean for wages?
    • Lower wages
    • More hours with less people
    • unemployed
if prices come down then inflation is tamed
If prices come down then inflation is tamed.
  • People shop
  • People travel
  • Employment goes up, with lower wages.
    • BUT, if prices are reasonable –
if interest rates are high
If interest rates are high:
  • People SAVE their money.
  • They can’t spend it, so if there is less money available …
if less money is available
If less money is available …
  • Businesses have to figure out ways to cut costs.
    • Lower wages
    • More efficiency moves
    • “gimmicks” for customers
      • New and Improved!
      • Better service
    • Lower prices
slide35
If prices come down then inflation is tamed.
  • People shop
  • People travel
  • Employment goes up, with lower wages.
    • BUT, if prices are reasonable –
microeconomics
Microeconomics
  • Microeconomics is the branch of economics that examines the choices and interaction of individuals concerning one product, firm or industry.
microeconomics38
Microeconomics
  • Microeconomists would be interested in why people prefer Coke over Pepsi, or how to make more money on the Stock Market.
economists seek answers to
Economists seek answers to:
  • What to produce?
  • How to produce?
  • For whom are they producing for?

The Three Basic Economic

Questions!

economists
Economists….
  • 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.
economists use theories to explain their ideas
Economists use theories to explain their ideas
  • A theory is a model or a simplified description of reality.
    • EXAMPLE OF A THEORY:
    • Wage Differential Theory – The Glass Ceiling
the economic way of thinking
People gain from voluntary trade.

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
the economic way of thinking43
The Economic Way of Thinking:
  • Economic thinking is marginal thinking.
  • Economic actions create secondary effects.
  • The test of a theory is its ability to predict.
lesson summary
Lesson Summary
  • The essence of economics is logic.
steps of decision making grids
Steps of Decision Making Grids
  • 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.
exchange
Exchange
  • If consumers buy more Blackberrys over Sprint, what does that tell Sprint?
exchange47
Exchange
  • Producers gain information through a process called an EXCHANGE – it which producers and consumers agree to provide one type of item for another.
money has three functions
Money has three functions
  • 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.
money has value
Money has VALUE
  • Value is determined by a product’s UTILITY.
    • Usefulness to a person.
most items have dmu
MOST items have DMU
  • Diminished Marginal Utility – usefulness decreases as it is used more and more.
other terms to know
Other Terms to know:
  • 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
terms to know
Terms to Know
  • 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.
terms to know54
Terms to Know
  • Credit – Third form of exchange. People can use item while paying for it.
  • Self-sufficiency – people fulfill needs without outside assistance.
terms to know55
Terms to Know
  • Interdependence – one area can influence the economy in another sector or the world.
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