Scarcity

Limited resources and unlimited wants = scarcity. Scarcity is “The Economic Problem.” It is the reason economics exists. There are only 24 hours in a day. There are only 5 cupcakes, but you want 6. Too bad. Why? Scarcity.

Opportunity Cost

Any time you choose to do something, you are choosing not to do something else.

Example:

You can wake up and go to school or you can stay in bed and sleep. If you choose to stay in bed, you miss your favorite class (economics). If you choose to go to school, you miss your dreams (also economics. I am everywhere. You cannot escape me.).

Everything you could do but don’t do is called a tradeoff. The tradeoff you like the most is called your opportunity cost.

Production Possibility Frontier (PPF)

On this graph, $X$ is inefficient, $A$, $B$, and $C$ are efficient and $Y$ is impossible, or unattainable.

• Points on the line are efficient.
• Points under the line are inefficient.
• Points above the line are unattainable.

The word efficient sounds like it means “good,” but in economics, it just means “maximizing production” (remember maximum and minimum). Sometimes our goal is not to maximize production. Sometimes our goal is to, for example, save the environment by producing less. In that case, efficient production might be a bad idea.

Shifts

But notice on the graph that the solid line has an arrow pointing to a dotted line with point $Y$. If that shift happens, $Y$ becomes efficient, and $X$, $A$, $B$, and $C$ become inefficient.

When Phantom had my patented Tri-Pen Technology, she could draw more triangles than before. Here, the graph is guns and butter instead of right-handed squares and left-handed triangles, but it is the same idea.

Straight Line or Curve.

Constant opportunity cost = constant slope = straight line.

If the two goods are very similar, the line will be straighter. If they are very different, the line will be curved:

We will discuss a little more about opportunity costs after an activity I have for you next week. Then you will be able to draw a PPF yourself, my little Shifty Shifter.

Supply and Demand

Pearl Market

The second activity we did introduced you to the idea of markets and you learned that everyone is a winner in a market transaction, ceteris paribus. (You also learned ceteris paribus).

You bought and sold pearls (which are not my son’s toys [and even if they were my son’s toys, he does not put his toys in his mouth]).

• You saw that when lots of clams die, the price of pearls goes up. This is the beginning of The Law of Supply and Demand.
• You saw that, when there is a substitute (diamonds), the price of pearls goes down, ceteris paribus.

First Assessment

After we finished ^ that stuff^, I told you what your first assessment would be and some of you have picked an agricultural market to research already. The first assessment will be due in October.

How Governments Can Affect Markets (More about Supply and Demand)

Handshake Market Activity

We only just started this, so we don’t have very much information to review yet, but you did learn some vocabulary (click to open):