Scarcity

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					Scarcity
    We experience scarcity because:
   Wants are
    unlimited.

   Resources,
    however are
    limited.
What resource is most scarce for
             you?
                      Well, for me
                       it’s time!
                      How would
                       life be
                       different if you
                       had 6 more
                       hours every
                       day?
    How do we cope with scarcity?

   We make choices
How do we choose?

              Economists assume
               that people make
               rational choices that
               they believe will
               benefit them.
              Is that actually true?
Not always, we make many irrational
             choices.
But more often than not, people act
      in their own interest
   The Evolutionary argument: If they don’t, they
    don’t survive for long.
   This was true for all living creatures.
   It’s also true for people running businesses or
    investing in the stock market.
   It’s also impossible to predict irrational
    behavior; people might do anything if they’re
    not acting in their best interest.
    Rational decision making involves
     weighing costs against benefits.
   Costs: Resources
    we expend to gain
    something.
   Benefits:
    Satisfaction of our
    wants or needs.
Even when it’s not easy to see how
 benefits outweigh costs, analysis
    usually reveal rationality
                         How much
                          should we be
                          willing to
                          spend for
                          athletic shoes?
                         What are the
                          costs?
                         The benefits?
 Should you spend more time deciding
what candidate to vote for or what car to
                 buy?
   What’s more
    important?
   How much
    impact do you
    have on the
    election?
   On the
    decision about
    the car?
     Sometimes we weigh benefits to
    ourselves against costs imposed on
            society as a whole




   This is called a negative
    externality
  We usually understand these as
decisions made based on individual
          considerations
   What does the
    general want?
   What will the
    soldier decide?
   What might
    motivate him to
    do as the general
    wants?
 Sometimes the benefits aren’t as
obvious as the costs at first glance
                           What’s the deal
                            on the Red
                            Coats?
                           British officers
                            were more
                            worried about
                            the soldiers
                            running away
                            than being
                            shot.
Now you try
                      Now you try
   You are being chased by bandits and your sword is broken.
   Fortunately, you are on a horse and they are on foot.
   Unfortunately your horse is tired and they will catch up soon.
   Fortunately, you have a bow and as a hero, you never miss.
   Unfortunately, you have only 10 arrows and there are 40 bandits.
   The bad guys are strung out in a line with the fastest guys in
    front. They are close enough to count your arrows.


   Use cost-benefit analysis to escape!!!
     We call the satisfaction of your wants
               and needs utility

   Economists
    have created
    an imaginary
    unit of
    satisfaction
    called the util
    The Law of Diminishing Utility
   We know that as we get
    more units of anything,
    the satisfaction we
    derive from each one
    (the number of utils)
    decreases.
   Is there anything for
    which utility doesn’t
    diminish?
Which brings us to the 7-11 from Hell




   Here you can get only two things: Twinkies and
    Hostess Cupcakes.

				
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posted:3/24/2012
language:English
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