Professional Documents
Culture Documents
Scarcity & Efficiency
Scarcity & Efficiency
Presents
L: labor
K: capital
Resources
Wan
ts l: land
Resources - The inputs that
are used to make things we
want
u L: labor-skilled and unskilled, also
includes entrepreneurial ability
u K: capital-tools, machines, human
capital (education)
u L: land-natural resources, even water
Scarcity implies the necessity
of Choice
u We can’t have everything we want thus
we must make choices
u Three Basic Questions
v What (and how much)
v How
v For Whom
Basic Economic Questions
dealing with Scarcity
u What do we want, and how much of
each do we want?
u How shall we get what we want?
u Who shall enjoy what we have?
What do we want, and how
much of each do we want?
u I want, we want
v A chicken in every pot
v A car in my garage
v A garage
v Peace and quiet
v A lot of fun
v A good book
v And so on, and on, and on, and on, and on, and on, and on
How shall we get what we
want?
u Who will be the teachers? The nurses
and doctors? Who will raise our kids?
How will we provide for our old age?
For the education of our children?
u What technologies should we use? Do
we import, or do we produce
ourselves?
u What about the conflict between
production techniques and
environmental goals?
Who shall enjoy what we have?
u Those who are meritorious? Or, who
work hard? Or, who inherit?, Or who
are “pure blooded”? Or who are the
chosen few? Or who are educated?
u Is there a necessary link between what
we get and what we contribute? Should
there be such a link?
u Should some things be available to all?
v Basic medical service, food and shelter
v Basic education, telephone, postal service
v Internet access
v One trip to Disneyland, or a national park
per year per family
How should these questions be answered?
How are these questions answered?
u Economists have ideas about both.
u How should they be answered?
v Efficiently, say economists
v Equitably, say others
v Normative economics
u How are they answered?
v Increasingly through markets, moderated
with government regulation
v A “mixed” economy
v Positive economics
Efficiency
u The criterion used by economists
u Common sense of the term is “lack of
waste” but we use a definition more
precise
u Efficiency: the inability to make
someone better off without making
someone else worse off
u A change is efficient if the gainers could
potentially compensate the losers and
still come out ahead
Why Efficiency Makes Sense
Continue to Part 2