The Basic Economic Problem
The Basic Economic Problem
What Economics is really about
Scarcity
Economics is a social science that studies the allocation of scarce resources
Scarcity – an unlimited demand for limited resources
There simply isn’t enough to go around
What are some of the resources that you have?
Economic Roles
In the economy, there are two roles that are played out
PRODUCER – also called manufacturers, suppliers, or sellers.
CONSUMER – also called buyers or users
Which are you?
From the Producers’ Perspective
How do we decide who will get the limited stuff that we have?
Allocation Methods –
Price
Random Selection
Personal Characteristics
Queuing
Violence
From the Consumer’s Perspective
From the Consumer’s Perspective
How do consumers get what they want?
Cost – having to give up something in order to get what you want.
Cost does NOT equal price
Price always involves money, costs can be anything
Types of Costs
External Cost – a cost that someone else creates, but you have to pay for it.
Sunk – a cost that you cannot get back
Marginal – the added cost of doing an additional thing
Opportunity – the value of the greatest sacrificed alternative
Production Possibilities
Opportunity cost
Marginal Opportunity Cost
Per-Unit Opportunity Cost
Growth
Marginal Analysis
Marginal Cost – the added cost of doing an additional thing
Marginal Benefit – the added benefit from doing an additional thing
Law of Increasing Marginal Cost – as units of production are increased, the marginal cost of doing additional work will also increase
Law of Diminishing Marginal Returns – as units of production increase, the benefit derived from additional work will decrease.
Demand
Demand – the amount of a good or a service that consumers are willing and able to buy [at every available price.]
Quantity Demanded (Qd) – the amount of a good or a service that consumers are willing and able to buy at a specific price.
Demand schedule – a list of various prices and quantities demanded
The Law of Demand – as the
What Economics is really about
Scarcity
Economics is a social science that studies the allocation of scarce resources
Scarcity – an unlimited demand for limited resources
There simply isn’t enough to go around
What are some of the resources that you have?
Economic Roles
In the economy, there are two roles that are played out
PRODUCER – also called manufacturers, suppliers, or sellers.
CONSUMER – also called buyers or users
Which are you?
From the Producers’ Perspective
How do we decide who will get the limited stuff that we have?
Allocation Methods –
Price
Random Selection
Personal Characteristics
Queuing
Violence
From the Consumer’s Perspective
From the Consumer’s Perspective
How do consumers get what they want?
Cost – having to give up something in order to get what you want.
Cost does NOT equal price
Price always involves money, costs can be anything
Types of Costs
External Cost – a cost that someone else creates, but you have to pay for it.
Sunk – a cost that you cannot get back
Marginal – the added cost of doing an additional thing
Opportunity – the value of the greatest sacrificed alternative
Production Possibilities
Opportunity cost
Marginal Opportunity Cost
Per-Unit Opportunity Cost
Growth
Marginal Analysis
Marginal Cost – the added cost of doing an additional thing
Marginal Benefit – the added benefit from doing an additional thing
Law of Increasing Marginal Cost – as units of production are increased, the marginal cost of doing additional work will also increase
Law of Diminishing Marginal Returns – as units of production increase, the benefit derived from additional work will decrease.
Demand
Demand – the amount of a good or a service that consumers are willing and able to buy [at every available price.]
Quantity Demanded (Qd) – the amount of a good or a service that consumers are willing and able to buy at a specific price.
Demand schedule – a list of various prices and quantities demanded
The Law of Demand – as the