1. Economics is defined as the study of how humans make choices with scarce resources. 2. The fundamental economic problem is that resources are limited while human wants are unlimited, meaning not all wants can be satisfied. 3. Something is considered scarce if people are willing to sacrifice or pay a price to obtain it, with scarcity increasing as the price rises. Scarcity is different from rarity, as diamonds are not rare but are very scarce.

1. L E C T U R E 1 - S C A R C I T Y

2. T H E D E F I N I T I O N O F E C O N O M I C S
• What is
Economics?
• The science of
choice
• The study of
the allocation
of scare
resources
• An economic
way of thinking

3. I F I O F F E R Y O U $ 1 0 0 .
• Will you accept a $1,000
more?
• What about $100,000?
• Would $1,000,000 satisfy
you?
• At what point will you
receive enough money
that if I offer you more,
you won’t accept it?

4. S C A R C I T Y A N D T H E F U N D A M E N TA L
E C O N O M I C P R O B L E M
• Of course, you want as much $$$ as possible
• The Law of Scarcity: Unlimited Wants and Limited Availability
• People will always want more, even if their immediate
needs are satisfied.
• What economics attempts to do is study human behavior
as a scientifically to project future behavior patterns.
However! Humans often act irrationally so their purchasing
habits are often difficult to predict.
• Q: So how do we know that something is scare?

5. S O H O W D O W E K N O W T H AT
S O M E T H I N G I S S C A R C E ?
• 1. People are willing to
sacrifice in order to get
it.
• 2. Oftentimes this
means there is a price.
• 3. The higher the price,
the more scarce it is.

6. S C A R C I T Y ≠ R A R I T Y
• Diamonds are not rare, but
are very scarce
• One-clawed lobsters are
more rare but are not as
scarce as two-clawed
lobsters.
• Explain?

7. T R A D E - O F F S ( C H O I C E )
• Because things are limited we are
often faced with making trade-offs,
or choices.
• All choices have a cost.
• Therefore, people often look at
incentives as a way to justify a
choice.
• An Incentive - is a reason for doing
something.
• Positive incentives are benefits you
gain from making a choice