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Lecture

Scarcity.docx

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Department
Economics
Course
ECON 2106
Professor
Kakeu
Semester
Spring

Description
Scarcity - The market has two sides: Consumer (demand) and Producer (supply) - Each side has agents who face scarcity - Consumer o People (consumers) with needs, wants, and desires o Multiple consumers from C1, C2…Cn o Objective: maximize utility - Producer o Firms (producers) whose goal it is to satisfy the needs wants and desires of the consumers o Number of firms depends on the type of market o Objective: maximize profits - Limitations o Consumer  Time  Money o Producer  Costs of production - Common Ground o Scarcity  Both the producer and the consumer will choose to minimize costs and maximize profits/utility I. Principles of Decision Making a. Individual Choice: the decision by an individual of what to do (and what not to do) b. Basic Principles i. Resources are scarce ii. Opportunity Cost: The cost of something is what you give up to get it iii. Marginal Decision Making: How Much? iv. People usually take advantage of opportunities to make themselves better off – decisions at the margin v. Decisions at the Margin: a decision based on the consumption/production of one more good – how much more will I benefit and is it worth it? c. Principle 1 – Choices are Necessary because of Scarcity i. Resource: land, labor, capital, entrepreneurship ii. All resources are scarce d. Principle 2 – The true cost of an item is its Opportunity Cost i. What is given up – the trade-off that is made to attain a product or result e. Principle 3 - Marginal Analysis i. Comparing costs and benefits of a little more versus a little less f.
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