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Scarcity & the Science of Economics
Do we ever have enough? List some things that are free:
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1. Air (ok, I tried)
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Air in Beijing, China
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2. Sunshine
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3. Trash (in Brazil)
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4. Free Intellectual Property from
Internet
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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.
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II. Factors of Production or Economic Resources
a) Land b) Labor c) Capital d) Entrepreneurs
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Land, Labor, Capital, & Entrepreneurs
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Take a few seconds and talk to your neighbor.
Which one of the 4 Factors of Production do you find the most important? How is your choice the most impactful to the economy?
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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? *Must have a Market* 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
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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.”
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Full Employment: 1. Of People = % unemployment
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of P & E (Plant and Equipment)
2. Full Employment of P & E (Plant and Equipment) =85% of P&E Capacity Utilization Rate
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VII: Productive Efficiency:
- When products are being produced in the least costly way.
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Industrial Robots
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VIII: Allocative Efficiency:
Resources are being used to produce that combination of goods and services societies want most.
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PC vs. Typewriter
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IX: Full Production: - Producing the “right goods” (allocative efficiency) in the (productive efficiency) “right way.”
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Take a few seconds and talk to your neighbor.
Do we do a good job of producing the right goods in the right way? What would happen if we did not maintain an 85% P+E? Who is harmed most by technological advances? What can we do to prevent that harm?
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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.
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Guns and butter
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A Sample PPC ● z
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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).
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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
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The most optimal point on the curve below is where the marginal benefit = the marginal cost.
Bean/Cheese Tacos MC $10 Price 5 2 MB 1 2 3 Quantity (100,000’s)
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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. Expand the 4 Economic Resources 2. Use new and improved technology 3. International Trade 4. Present choices future possibilities
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Take a few seconds and talk to your neighbor.
How does marginal benefits and marginal cost appear in your personal lives? What have you experienced, where diminishing marginal utility played a role in your decisions?
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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.
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Amazon Shaman
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Tanzanian Men with Face Paint
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Quechuan Woman
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Tanzanian Men
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Face Painting – Papua New Guinea
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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
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Former USSR
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Soviet Peasants on Collective Farm
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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
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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
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USA – Market Economy
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U.S. Businessman
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Trading floor of NYSE
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Outside the NYSE
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Take a few seconds and talk to your neighbors.
How much responsibility should the government have? Should the government oversee healthcare, or should we leave that industry to private insurance companies?
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