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Scarcity, Choice and Economic Reasoning

Scarcity, Choice and Economic Reasoning. The Right Start. The Unexpected Pleasure of Teaching Economics. Economics is the study of how humans choose to use scarce resources to achieve personal and social goals. Why Do We Choose?.

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Scarcity, Choice and Economic Reasoning

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  1. Scarcity, Choice and Economic Reasoning The Right Start

  2. The Unexpected Pleasure of Teaching Economics • Economics is the study of how humans choose to use scarce resources to achieve personal and social goals.

  3. Why Do We Choose? • Scarcity: a condition of being scarce, not common, not plentiful. Webster’s • Scarcity: a situation where human wants are greater than what limited resources can satisfy. Economics textbook • Scarcity: a condition that exists when a resource has at least two valuable uses.

  4. Valuable Use • A use for which individuals willingly sacrifice; to voluntarily bear a cost to avail oneself of this resource.

  5. Scarcity and Abundance • A resource can be both abundant and scarce if it has more than two valuable uses. • Columbia River • Mississippi River

  6. Not Plentiful, Not Scarce • Smallpox virus • Economics textbook given to a literature major. • Hamburger to a vegetarian • Fur coat to a PETA member

  7. Economic Reasoning: Major Premise • All social phenomena emerge from the choices that individuals make in response to expected costs and benefits to themselves. • Paul Heyne

  8. Key Ideas • Incentives: anticipated cost or benefits, monetary and nonmonetary, that influence individual choices.

  9. Inference • Human choice is influenced in a predictable way by changes in incentives.

  10. In the Workplace

  11. Applications • Needs: Something that people will pay any price, bear any cost to obtain. • Wants: Something that people make a choice to obtain depending upon the cost or sacrifice.

  12. Needs Worksheet #1

  13. Needs II

  14. Needs vs. wants • The concept “Needs” is not helpful when trying to explain or anticipate human behavior. • “Needs” suggest individuals have no choice with regard to their behavior. • “Wants” suggests the scarcity forces individuals to choose among alternatives.

  15. Importance of Social Choice: Three Key Questions • What to Produce? • How to Produce? • For Whom Will It be Produced?

  16. Conclusions • Scarcity forces people to choose. • People choose purposefully from among alternatives. • All choices involve alternatives, therefore there are no cost free choices. • Incentives influence choices. • Producers and consumers respond predictably to changes in incentives.

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