Economics for Leaders Economic Growth & Scarcity

Economics for Leaders Hypothesis for the Week: Human prosperity and social cooperation develop spontaneously in societies that protect private property rights and encourage voluntary trade.

Economics for Leaders Why Should We Care?

Economics for Leaders

Why Can’t You Have It All? SCARCITY: the FACT that resources are limited and human wantsandneeds are unlimited Not enough to go around!

Economics for Leaders Economic Reasoning Principle #1: People choose, and individual choices are the source of social outcomes. Scarcity necessitates choices: not all of our desires can be satisfied. People make these choices based on their perceptions of the expected costs and benefits of the alternatives.

Economics for Leaders Why can’t we have all we want? Available resources are limited  Land (57,506,000 sq mi. & not even all habitable!)  Labor (6,7 bil. souls x 24 hrs a day)  Capital (less than ∞, trust me)  Entrepreneurship (not everybody is Bill Gates) Human desires are boundless

Economics for Leaders Are YOU Never Satisfied ? – It’s not just you out there

Economics for Leaders Scarcity forces us to choose

Economics for Leaders So… Although we cannot have it all… …we still can have SOME of it. WWhat shall we have? HHow much of it? HHow shall we produce it? WWho will get it? Scarcity implies the need to make CHOICES!

Economics for Leaders Questions: Why are some countries rich and others poor? Why have some countries experienced economic growth and others have not? (What factors lead to economic growth? What can be done to promote economic growth and reduce poverty?

Economics for Leaders Low, Middle, & High Income Nations Why are some countries rich and others poor?

Economics for Leaders Economic Growth Economic growth raises standards of living, even in the continuing face of scarcity

Economics for Leaders ~1750 Population Growth and Important World Events

Economics for Leaders

Economic Growth improves the lives of the poor by making the pie bigger Bigger “slices” mean higher standards of living

Economics for Leaders The Secret to Economic Growth: Productivity The output produced from a given set of resources in a given period of time. Increasing productivity means that greater output is produced from a given set of resources in a given period of time.

Economics for Leaders Key to Productivity: Institutions the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction. Institutions in your life:

Economics for Leaders What are the “rules of the game” (the accepted and expected forms of social interaction) in: Dating ?

Economics for Leaders Institutions Matter: Property rights The rule of law Open markets Entrepreneurship and innovation

Economics for Leaders Institutions Shape Incentives The reward or penalties that influence people’s choices and behavior.

Economics for Leaders Economic Reasoning Principle #2: Choices impose costs; people receive benefits and incur costs when they make decisions. The cost of a choice is the value of the next- best alternative foregone, measurable in time or money or some alternative activity given up.

Economics for Leaders Opportunity Cost The value of the next best or forgone alternative.

Economics for Leaders Marginal Cost = cost of next Action, Choice, Unit of production Marginal Benefit = benefit of the next Action, Choice, Unit of production

Economics for Leaders Choices are made at the Margin Our only choice is the next choice Marginal = additional, next, a little more or a little less

Economics for Leaders The “Big Ideas” from Lesson 1: 1.Scarcity forces us to choose among alternatives 2.Economic growth gives us more to choose from and raises standards of living by: – reducing infant mortality, – Increasing life expectancy, – reducing hunger, – improving environmental quality, and – reducing the incidence of debilitating diseases.

Economics for Leaders The “Big Ideas” from Lesson 1: 3.Some institutions and institutional arrangements encourage economic growth and some do not. 4.The institutions that foster growth and economic development include: Open markets Property rights and the rule of law Entrepreneurship and innovation

Economics for Leaders The poverty of some nations and the wealth of others is not an accident; it is the result of choices