Lecture 1 - Scarcity

L E C T U R E 1 - S C A R C I T Y

T H E D E F I N I T I O N O F E C O N O M I C S

• What is Economics?

• The science of choice

• The study of the allocation of scare resources

• An economic way of thinking

I F I O F F E R Y O U $ 1 0 0 .

• Will you accept a $1,000 more?

• What about $100,000?

• Would $1,000,000 satisfy you?

• At what point will you receive enough money that if I offer you more, you won’t accept it?

S C A R C I T Y A N D T H E F U N D A M E N TA L E C O N O M I C P R O B L E M

• Of course, you want as much $$$ as possible

• The Law of Scarcity: Unlimited Wants and Limited Availability

• People will always want more, even if their immediate needs are satisfied.

• What economics attempts to do is study human behavior as a scientifically to project future behavior patterns. However! Humans often act irrationally so their purchasing habits are often difficult to predict.

• Q: So how do we know that something is scare?

S O H O W D O W E K N O W T H AT S O M E T H I N G I S S C A R C E ?

• 1. People are willing to sacrifice in order to get it.

• 2. Oftentimes this means there is a price.

• 3. The higher the price, the more scarce it is.

S C A R C I T Y ≠ R A R I T Y

• Diamonds are not rare, but are very scarce

• One-clawed lobsters are more rare but are not as scarce as two-clawed lobsters.

• Explain?

T R A D E - O F F S ( C H O I C E )

• Because things are limited we are often faced with making trade-offs, or choices.

• All choices have a cost.

• Therefore, people often look at incentives as a way to justify a choice.

• An Incentive - is a reason for doing something.

• Positive incentives are benefits you gain from making a choice

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