scarcity

Document Sample
scarcity Powered By Docstoc
					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:
• There is only so
  much oil in the
  world.
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 scarce:
                  • Elephants are on
                    the critical list of
                    endangered
                    species.
                    Poachers kill them
                    for the ivory, Asian
                    medicines and
                    aphrodisiacs.
Economics
• The social science that deals with how
  society allocates its scarce resources
  among its unlimited wants and needs.
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
• The factors of
  production:
  –   Natural resources
  –   Human resources
  –   Capital resources
  –   entrepreneurship
There are two branches in
Economics:

• Macroeconomics
• Microeconomics
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!
• Transition
  Problems!
  – New chief
    macroeconomist for
    the US Economy.
  – Change-over from
    Greenspan to
    Bernanke.
  – We have economic
    problems.
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
               • 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
• Came to
  Greenspan’s
  attention with his
  work on the
  National Bureau of
  Economic
  Research.
  – He recommended him
    with others to
    President Bush.
So what is wrong with the US
economy right now?
Bernanke’s BIG concern for the
US Economy is:
• INFLATION!
  – Prices go up faster than
    our wages do!
  – WHY WOULD THIS
    BE BAD????
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?
                • Jobs?
                • Hours?
                • Pay?
                • Less for
                  spending?
                • Less for saving?
                • More incentive to
                  put your money in
                  the bank.
If inflation is happening, what do
you demand from your jobs?
•
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????
• Interest Rates
• Money Supply
• Slow the Velocity
  of the dollar
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 …
• 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.
Why would Ben Bernanke do
that to us????
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?
• Lower prices mean
  more people might
  be able to buy a
  house.
• Bernanke wants
  “realistic” prices.
  The Housing Bubble Markets




SOURCE: http://calculatedrisk.blogspot.com/2005/06/when-bubble-will-burst.html
Higher Interest Rates slow
spending
• What does that
  mean for wages?
  – Lower wages
  – More hours with less
    people
  – unemployed
IF people aren’t spending – what
do stores have to do to get you to
shop?
• LOWER PRICES!
If prices come down then
inflation is tamed.
• People shop
• People travel
• Employment goes
  up, with lower
  wages.
  – BUT, if prices are
    reasonable –
The economy is fixed!
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 …
• Businesses have
  to figure out ways
  to cut costs.
  – Lower wages
  – More efficiency moves
  – “gimmicks” for
    customers
     • New and Improved!
     • Better service
  – Lower prices
If prices come down then
inflation is tamed.
• People shop
• People travel
• Employment goes
  up, with lower
  wages.
  – BUT, if prices are
    reasonable –
The economy is fixed:
Macroeconomics to the rescue!
Microeconomics
• Microeconomics is
                      90
  the branch of       80
  economics that      70
                      60
  examines the        50
                      40
  choices and         30
  interaction of      20
                      10
  individuals          0
  concerning one           1st 2nd 3rd 4th
                           Qtr Qtr Qtr Qtr
  product, firm or
  industry.
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:
• What to produce?
• How to produce?
• For whom are they producing for?
  The Three Basic Economic
         Questions!
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
                 • 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     • People create
  voluntary trade.       economic systems
• Everything has a       to influence
  cost.                  choices and
• People choose for      incentives.
  good reasons.        • The value of goods
• Incentives matter.     or services is
                         affected by
                         people’s choices.
The Economic Way of Thinking:
• Economic thinking       90
  is marginal             80
                          70
  thinking.               60
                                                 East
• Economic actions        50
                                                 West
                          40
  create secondary        30
                                                 North

  effects.                20
                          10
• The test of a            0
  theory is its ability        1st 2nd 3rd 4th
                               Qtr Qtr Qtr Qtr
  to predict.
      Lesson Summary

• The essence
  of economics
  is logic.
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
           • If consumers buy
             more Blackberrys
             over Sprint, what
             does that tell
             Sprint?
Exchange
• Producers gain
  information
  through a process
  called an
  EXCHANGE – it
  which producers
  and consumers
  agree to provide
  one type of item
  for another.
Exchange takes one of three
forms:
• Barter
• Money
• Credit
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
• Value is
  determined
  by a
  product’s
  UTILITY.
  – Usefulness to
    a person.
MOST items have DMU
• Diminished
  Marginal Utility –
  usefulness
  decreases as it is
  used more and
  more.
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
• 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 Know
• Credit – Third form
  of exchange.
  People can use
  item while paying
  for it.
• Self-sufficiency –
  people fulfill needs
  without outside
  assistance.
Terms to Know
• Interdependence –
  one area can
  influence the
  economy in
  another sector or
  the world.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:7
posted:11/17/2011
language:English
pages:55