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Caused by Scarcity.
There isn’t enough, no matter how much there is.
The problem with scarcity is that you have decide
between competing options. What to do, what to do
One way of measuring economies is the Number of
Choices Available. Give Assignment to Group 1 and 2
One Problem with choices is who gets them.
The Real Cost of Something Is What You Must Give Up
To Get It
Sometimes this is Money, but not always. It can
include the value of the next best thing.
People are Rational
Choices are made which best suit the individual
We can help others make choices by Providing
We can help others make choices by increasing
the costs of a choice by providing added COSTS.
The Invisible Hand
Coined in 1776, Adam Smith, The Wealth of Nations
Individual choices select the product mix. It is because of
Responses to Demand, the baker bakes the bread.
Why does Whatcom College Exist? Or Wal-Mart? Or Exxon?
The invisible hand is the best government.
rules of the road for cars
rules of the road for pedestrians
rules of the road on a skate park.
The Invisible Hand (Continued)
An economy exceeds only to the extent it delivers the
goods. Let’s think on this a minute.
In the perfect economy, are there no goods? What would be
different in a PERFECT economy from what we have?
We have a market economy, that is, the market dictates.
This is opposed to a Command Economy. Soviets, China,
Cuba (any similarities?) long lines, no goods. Why?
Unplanned chaos does a better job, the invisible hand
Invisible Hand/Self Interest
Self interest suggests we will select what is best for us.
Suppliers, based on knowing that, will produce what we
want, in their self interest.
What we want gets provided for better than any other
Think of last week’s floods. Think thru the lane changes
we make, the way home when a road is closed. If you
pull up to a light, you are second in line in the right hand
lane and no one is in the left lane,, ,what do you do?
Think thru lines at grocery stores or gas stations.
People exploit opportunities to make
All other things being equal, do you buy
the same produce at $4 or $3? Why?
We want to exploit what is best for US,
Difference between Self Interest versus
Selfishness. Talk about that.
We left off here
There is a gain from trade.
We did the trade game.
One reason for gains is that we value things differently
Not everyone values Universal Health Care
Another reason is that we can do better trading when we
specialize, we all get more. Assign Wealth of Nations Reading.
http://www.econlib.org/library/Smith/smWN.html (link in website.
Read chapter I, OF THE DIVISION OF LABOR
Specialization gives jobs, creates wealth. We really do need each
other. Give Pencil Assignment to group #5 (Friday present)
Markets tend toward Equilibrium
Markets tend to be most efficient
they bring only what we want
Suppliers have to do it at costs we accept
because of choices and what is best for us we won’t pay
just anything, we are rational and we have choices
When Markets appear not to be working,
Government thinks it can do better.
Right now, for instance.
Resources should be used EFFICIENTLY
Class room assignments (large # in small rooms
and small # in large rooms) Inefficient
Efficiency in Economics is not about money, it is about the proper
allocation of RESOURCES so that everyone is better off.
Opportunities, fully exploited, where everyone wins.
A less desirable view is when opportunities are exploited such that
there are only winners and no losers, some people are better off
without making anyone less well off.
Problems with equity, fairness, both real and perceived.
Is it fair to reward some differently than others? Story of employer
Is it fair that some win and others, while not losing, don’t win any?
Markets Lead to Efficiency
The invisible hand does the work.
Incentives generally insure that resources are used in the most
efficient way. We adjust, think of the lines.
Assumptions made in Economics
Models for planning
1. Other things being equal assumptions.
The Production Possibility Frontier
Discuss Tom Hanks, Castaway.
Note three areas on board
Draw on the board and discuss:
1. Feasible and Efficient
Quantity of coconuts
Quantity of fish 2. Not Feasible
3. Feasible but not
Remember: scarcity and choices
4. (replace this with a