Chapter - Basic Concepts and Definitions: Scarcity: the...

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Basic Concepts and Definitions: Scarcity : the inability to satisfy all of our needs and desires. Everyone faces scarcity. If you want something, but don’t have the money to pay for it you are facing scarcity. But scarcity is not just about money. Let’s say that you have two sets of friends. One wants you to go see a movie Friday night, the other wants you to go out to dinner with them at the same time. You’d like to do both, but can’t be in two different places at the same time. This is a problem of scarcity. You only have one body and there are only 24 hours in the day. Scarcity forces you to make choices. You have to decide which wants you are going to satisfy. Society doesn’t have enough resources to satisfy all of its wants. Therefore, we have to make choices as to which want we satisfy, and which we leave unfulfilled. Economics (definition 1) : Is the study of the distribution scarce resources in societies which have unlimited wants. There are two main questions that economists ask: 1. Is the distribution of resources efficient? 2. Is the distribution of resources equitable? Efficiency : We say that if resources are distributed in such a way that the only way to make one person better off is to make another worse off they are distributed efficiently . For example, lets say that there were two classrooms, a 50 person classroom and a 75 person classroom. Now lets assume that a 70 person class has been assigned to the 50 person classroom and the 75 person classroom is empty. This would mean that 20 people would have to sit on the floor or stand while there was an open classroom down the hall. This situation is inefficient. Everyone would be better off if the 70 person class was assigned to the 75 person classroom. If the class were to move, that would be an efficient outcome. This definition of efficiency has its critics. To see why, now assume that there is already a 55 person class in the 75 person classroom. Then there would be 20 people standing in the first classroom, and zero people standing in the second class room, for a total of 20 people standing. However if we switched the two classes, there would now be 55 people in the 50 person classroom, and 70 people in the 75 person classroom, for a total of only 5 people standing. Obviously, this is a more desirable situation, but the original room assignments are still considered efficient because while there are now fewer people standing, five people now have to stand, i.e. they were made worse off, who did not have to stand before.
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There are other definitions of efficiency that we will not cover in this class that try to deal with this issue. Equity
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This note was uploaded on 09/08/2011 for the course ECON 100 taught by Professor Pgking during the Spring '08 term at S.F. State.

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Chapter - Basic Concepts and Definitions: Scarcity: the...

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