1. Scarcity & the Science of Economics – Chapters 1 and 2
Do we ever have enough?
List some things that are free:

2. 1. Air (ok, I tried)

3. Air in Beijing, China

4. 2. Sunshine

5. 3. Trash (in Brazil)

6. 4. Free Intellectual Property from
Internet

7. I. TINSTAAFL:
- There is no such thing as a free lunch. Someone always has to pay.
A) The Fundamental Economic Problem:
- Scarcity.
B) Scarcity Exists because:
- societies do not have the resources to produce all the things people want.

8. Factors of Production or Economic Resources
a) Land
- “Gift of nature.”
- Payment = Rent
b) Labor
- People & their skills.
- Payment = Wages

9. c) Capital
- “Things that make
other things.”
- Payment = Interest
d) Entrepreneurs
- Risk takers seeking
profits.

10. Land, Labor, Capital, & Entrepreneurs

11. III. Three Basic Economic Questions:
- To provide for people’s needs,societies need to
make a choice about how to use its limited
resources and must answer the following
questions
A) What to produce?
B) How to produce?
C. For whom to produce?
IV. The Big Question: What does economics mean?
- Economics is the study of how societies attempt to satisfy seemingly unlimited human wants through careful use of relatively scarce resources

12. What is Macroeconomics:
-It deals with the economy as a whole, with basic subdivisions such as the government, households, and business sectors of the economy. Macro- economics deals with “the forest, not the trees.”

13. Full Employment:
1. Of People = %
unemployment

14. 2. Full Employment
of P & E =85%

15. VII: Productive Efficiency:
- When products are being produced in the least costly way.

16. Industrial Robots

17. VIII: Allocative Efficiency:
Resources are being used to produce that combination of
goods and services societies want most.

18. PC vs. Typewriter

19. IX: Full Production:
- Producing the “right goods” (allocative efficiency) in the (productive efficiency) “right way.”

20. Resource Utilization & the PPC
I. What is the Production Possibilities Curve?
- It is an economic model of choices
II. Assumptions of the PPC:
a) Efficiency – the eco. is operating at full employment & full
production
b) Resources are fixed in quantity & quality
c) Technology is fixed
d) The economy only produces two
products.

21. Guns and butter

22. A Sample PPC
● z

23. III. Productive Efficiency & the PPC:
A. To be on the curve, a society must
achieve both productive &
allocative effciency.
B. Points inside the curve are attainable, but represent
economic inefficiency and unemployment.
C. Points outside the curve are not
attainable or only temporarily attainable (WWII).

24. IV. Law of Increasing Opportunity Costs:
A. What is the economic reason for the law of Increasing Opportunity costs?
Factor Suitability.
V. Allocative Efficiency & the PPC:
A. Marginal Output.
B. Marginal Benefit
C. Utility
D. Marginal Cost

25. The most optimal point on the curve below is where the marginal benefit = the marginal cost.
Bean & Cheese
Tacos
MC or Marginal Cost
$10
Price 5 2
MB or Marginal Benefit 3 1 2
Quantity (100,000’s)

26. VI. Law of Diminishing Marginal Utility: What does it mean?
As you consume more and more of a product, you get less and less utility.
VII. How can we grow the economy?
1. Use new and improved technology
2. Expand the 4 Economic Resources
3. International Trade

27. The 3 Economic Systems: Traditional Economy:
- Economic activity based on ritual, habit, & custom.
a. Strengths:
1. everyone knows their role & life
is stable & predictable
2. Little uncertainty over the what,
how, & for whom questions
b. Weaknesses:
1. discourages new ideas
2. lack of progress leads to lower standard of living.

28. Amazon Shaman

30. Face Painting – Papua New Guinea

31. II. Command Economy:
- Central authority makes most economic decisions.
a. Strengths:
1. Can change direction drastically in short time.
B. Weaknesses:
1. Not designed to meet needs & wants of individuals.
2. large bureaucracy for economic planning
3. Not flexible in dealing with
everyday issues
4. Stifles new ideas

32. Former USSR

34. III. Market Economy:
- People & firms act in own best
interest to answer economic
questions
A. Strengths:
1. Markets can adjust over time
2. Relatively small government interference
3. decentralized decision making
4. High variety/quality of products
5. High consumer satisfaction

35. 1. Main one is deciding for whom to produce
B. Weaknesses:
1. Main one is deciding for whom to produce
2. The young, sick, & old have difficult time in pure market
system.
3. Markets sometimes fail
- Competition (or lack thereof)
- resource mobility
- availability of information

36. USA – Market Economy

37. Trading floor of NYSE