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?

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.

Valuable Use

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

Scarcity and Abundance

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

Not Plentiful, Not Scarce

Smallpox virus Economics textbook given to a

literature major. Hamburger to a vegetarian Fur coat to a PETA member

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

Key Ideas

Incentives: anticipated cost or benefits, monetary and nonmonetary, that influence individual choices.

Inference

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

In the Workplace

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.

Needs Worksheet #1

Needs II

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.

Importance of Social Choice: Three Key Questions

What to Produce? How to Produce? For Whom Will It be Produced?

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.