Economics, Scarcity, and Choice :: Economics

Economics, Scarcity, and Choice Economics: is the study of choice under conditions of scarcity Scarcity: a situation in which the amount of something available is insufficient to satisfy the desire for it. - time and purchasing power are scarce As individual’s, we face a scarcity of time and spending power. Given more of either, we could have more of the goods and services that we desire. Resources: the land, labor, and capital that are used to produce goods and services - scarce labor – the time human beings spend producing goods and services capital – long lasting tools used in producing goods and services physical capital: buildings, machinery, equipment human capital: skills and training workers possess land – the physical space on which production occurs, and the natural resources that come with it As a society, our resources, land, labor, and capital, are insufficient to produce all the goods and services we might desire. In other words, society faces a scarcity of resources. Raw material – not long lasting tool Ex. Chalk What to produce? How much to produce? How to produce it? The World of Economics Microeconomics: the study of the behavior of individual households, firms, and governments; the Choices they make; and their interaction in specific markets What happens to the cost of movie tickets over the next five years? How many jobs will open up in the fast-food industry? Macroeconomics: the study of the economy as a whole Lumps all goods and services together and looks at the economy’s total output. Positive economics: the study of what is, of how the economy works (deals with the facts) Ex. If we lower income tax rates in the U.S. next year, will the economy grow faster? If so, by how much? What effect will it have on total employment? Normative economics: the study of what should be; it is used to make value judgments, identify Problems, and prescribe solutions. Normative analysis is based on positive analysis. Why Study Economics 1. To understand the world better - understand global and cataclysmic events such as wars, famines, epidemics - understand local problems; ex. Worsening traffic conditions in the city - tell us how many skilled therapists, ministers are available to help us 2. To gain self-confidence - when you master economics, you gain a sense of mastery over the world, and thus over your own life 3. To achieve social change - make the world a better place