SCARCITY AND THE SCIENCE OF ECONOMICS

CHAPTER 1 SECTION 1

PAGES 5 - 10

WHAT IS ECONOMICS?

• Study of how people try to satisfy what appears to be unlimited wants through careful use of relatively scarce resources
• Conflict often occurs because of this*

ADAM SMITH – 1723 - 1790

• Father of modern economics
• Invisible hand – peoples self interest will make our society better
• Not government
• Wealth of Nations*

FUNDAMENTAL ECONOMIC PROBLEM

• Scarcity – not having enough resources to produce all the things people would like to have
• Affects almost every decision we make in our lives*

SCARCITY IN MARKETING

• Used to create demand by convincing us the product is almost gone
• We feel a need to consume when items are limited*

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TINSTAAFL

• “There is no such thing as a free lunch”
• Everything we do has a cost
• Do we ever get things for free?
• Production costs, delivery costs, labor costs, increase in prices*

THREE BASIC QUESTIONS

• We have to make wise decisions because of scarce resources
• 1. What to produce?
• 2. How to produce?
• 3. For Whom to produce?*

WHAT TO PRODUCE?

• Should a society produce food, housing, defense?
• Wisconsin’s Economy – what do we produce the most of?
• Agriculture – Dairy #2 behind California, 1^st for cranberries, 1^st in corn, and ginseng
• Manufacturing – 1/3 of all cheese, heating and cooling equipment, car parts
• Kohler company, John Deere, Harley Davidson, Caterpillar, Ashley Furniture
• Tourism (3^rd largest industry)
• Wisconsin Dells, Door County, Lake Superior and Lake Michigan, festivals
• Wisconsin produces no oil, coal, or gas*

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North Korea Compared to South Korea

HOW TO PRODUCE?

• When producing products what methods do you use?
• Mass production, less equipment, more workers, United States, China?*

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HOW TO PRODUCE?

FOR WHOM TO PRODUCE?

• Items produced must be allocated (given out) to people.
• Who gets what?*

FOR WHOM TO PRODUCE?

WHAT IS THE DIFFERENCE BETWEEN A NEED AND A WANT?

• Need – Basic requirement for survival; includes food, clothing, and shelter
• Generally cost less than a want
• Want – way of expressing a need*

NEED VS. WANT

Vs.

Vs.

Conspicuous consumption?

Secret Circus – $1.3 million

iPhone Case

$300,000

$17,000

$7.5 million – gold covered Lamborghini

The term conspicuous consumption–which means the use of a good or service to impress others–was coined by economist and social critic Thorstein Veblen in his study The Theory of the Leisure Class (1899).

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FACTORS OF PRODUCTION

• Land, Labor, Capital, and Entrepreneurs
• These are the resources required to produce the things we would like to have*

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LAND

• “Gifts of Nature”
• Deserts, Fertile fields, Forests, Mineral deposits, Livestock, Sun, Climate
• Only so many available at any one time so limited
• Not enough farmable land, beaches to lay on, energy sources to power world*

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CAPITAL GOODS

• Tools, Equipment, Machinery, and Factories used in the production of goods and services
• Capital is the result of production
• Financial capital – money used to buy the equipment and tools used in production*

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LABOR

• People with all of their efforts, abilities, and skills
• Factors that have affected labor include:
• Population growth, immigration, famine, war, disease.*

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ENTREPRENEUR

• Risk-taker in search of profits who does something with existing resources
• Use land, labor, and capital to produce new products*

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LET’S BUILD A TOWER OF STRAWS!

• What you get:
• 30 straws, 1 foot of tape, 1 pair of scissors
• Rules
• You can only cut the tape not the straws
• It must be a free standing structure
• No taping to the floor or ceiling or desk. Cannot lean against anything
• I can measure your tower multiple times.
• You have 20 minutes.