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Basic economic concepts . Scarcity and Choice Opportunity cost. Human wants. Unlimited wants. Resources. used to produce goods / services to satisfy human wants limited in supply scarce: i.e. their quantities are insufficient to satisfy all human wants . Types of resources.

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basic economic concepts
Basic economic concepts
  • Scarcity and Choice
  • Opportunity cost
human wants
Human wants
  • Unlimited wants
resources
Resources
  • used to produce goods / services to satisfy human wants
  • limited in supply
  • scarce: i.e. their quantities are insufficient to satisfy all human wants
types of resources
Types of resources
  • Natural resources: e.g. sunshine, rain, crude oil
  • Human resources: labour service
  • Man made resources: e.g. machines, equipments
scarcity
Scarcity
  • Meaning: Resources are insufficient to satisfy ALL human wants
  • A relative concept: we want more than we have
  • Basic economic problem in human societies
do they face scarcity problem
Do they face scarcity problem?
  • United States
  • Hong Kong
  • North Korea
  • Africa
is sea water scarce
Is sea water scarce?
  • Is it fixed in supply?
  • Do we want more sea water than we have?
  • Sea water is not scarce
are they scarce
Are they scarce?
  • Sunshine in Thailand
  • A free sample of candies given at a shopping centre
  • Fresh air in a café with many smokers
  • Sand in the desert
are they scarce9
Are they scarce?
  • Sunshine in Thailand 
  • A free sample of candies given at a shopping centre 
  • Fresh air in a café with many smokers 
  • Sand in the desert 
competition
Competition
  • We compete for the use of limited resources
    • 2 ways of competition
    • Price competition
    • Non price competition e.g. waiting, examination, lucky draw, violence…
making choices
Making choices
  • Which restaurant will you go for lunch?
  • What would you like to study at university?
  • What will you buy with $100? CD or dress ?
  • Which girl (boy) will you marry?
what is economics
What is economics?
  • It studies how we allocate the limited resources to satisfy unlimited wants
opportunity cost
Opportunity cost
  • Opportunity cost is the highest-valued option forgone
choice among options
Choice among options
  • Rank options according to a person’s preference order
  • Option 1 going to cinema
  • Option 2 going to sing karaoke
  • Option 3 sleeping at home
what is the cost of going to the cinema
What is the cost of going to the cinema?
  • Going to sing karaoke (highest-valued option forgone)
  • We cannot choose option 2 and option 3 at the same time, we only forgo option 2 when we select option 1
choosing a career job
Choosing a career / job
  • Option 1 being an actress ( $10 Mn. p.a.)
  • Option 2 being a nurse ( $ 0.5 Mn. p.a.)
  • .
  • Income forgone being an actress < income forgone being a nurse
  • Cost being an actress < cost being a nurse
  • Choose the job with the lowest opportunity cost
more elderly found in queues
More elderly found in queues
  • Before festivals, wait for gifts (rice, mooncakes, red envelopes etc)
  • In public clinics
  • Income forgone by elderly < income forgone by working persons
  • Cost of waiting by elderly < cost of waiting by working persons
full cost
Full cost
  • Option 1 going to a 1 hour concert and pays $200 for a ticket
  • Option 2 working in Park’n as a salesman earning $30 per hour
  • Option 3 working as a tutor earning $100 per hour
  • Full cost of attending the concert = price of ticket + income forgone (highest-valued option forgone)
  • Full cost of attending the concert = $200 + $100 = $300
complimentary tickets
Complimentary tickets
  • Going to Hong Kong Disneyland
  • Ticket : Free of charge
  • Money spent on food, transport..=$200
  • Income forgone = $500
  • Full cost of going for Disneyland (HK) =$700
is time a cost
Is Time a cost?
  • Price of a mobile phone =$1 800
  • Search = one evening
  • Income forgone while searching = $200
  • Opportunity cost of buying the mobile phone is $2 000
uses of a flat
Uses of a flat
  • Mrs Lo has the following options for her flat in Shatin :
  • Option 1 Owner occupied
  • Option 2 Vacant
  • Option 3 Lease with a rental income $50 000 per year
  • Suppose she chooses to live in her flat, what is her cost of living in that flat?
social cost
Social Cost
  • Building a new railway $100 million
  • Creating pollution nearby (e.g. cutting trees, noises) $5 million
  • Social cost of building highway
  • = private cost + external cost
  • = $105 million
slide24

Questions

&

Answers

slide25

Q1

Miss Cheng could spend two hours at a concert or

tutoring a student at $70 per hour. She could use the time

on painting instead and earn a total of $170. If the price of

the concert ticket is $250, what is the opportunity cost of

her choice of going to the concert?

A. $410

B. $420

C. $430

D $440

Answer :

C. $430

slide26

Q2

Mary has accumulated 20 Coupons.

What is the opportunity cost to her

if she uses them to exchange for one

camera?

A.Cup

B. Bag

C. Cup and Bag

D. Cup or Bag

Answer:

C. Cup and Bag

slide27

Q3

A. Once a choice is made, the problem of scarcity is solved.

B. A good is scarce if not everyone has it.

Which of the

following statements

about scarcity is true?

C. Scarcity means unlimited human wants.

D. Both rich people and poor people face the problem of scarcity.

Answer:

D

slide28

Which of the following are opportunity

costs of attending school?

(1) Poor examination results

(2) Income forgone

(3) School fees

(4) Expenditure on dinners

Q4

A. (1) and (4) only

B. (1) and (3) only

C. (2) and (3) only

Answer:

D. (2) and (4) only

C. (2) and (3) only