So why are you here this semester taking economics?
What's it all about?
A lot of people have misconceptions about economics -- that we'll spend our time studying
investments, stock market, finance....
Uh-uh.
We're studying people, folks, and why they behave the way they do.
Two facts are true about everyone regardless of gender, creed, color, or income.
The first is unlimited wants -- everyone has unlimited wants.
Take my own family for example; we have a nice home, two dogs, cat, two cars, a big
TV, multiple computers -- and yet no matter what we have, we’d always like to have more.
I'd like a double oven, new carpeting; I'd like to get the house painted.
And my husband’s always dreamed of his own airplane with a home in an airpark.
My daughter?
A new handheld game, cell phone, clothes, music -- even if we ended up getting these
things there'd always be something else.
That's unlimited wants.
What's the problem with having unlimited wants?
Well, everyone also has limited resources, which means there is no possible way to satisfy
all those things we'd like to have.
Maybe you don't have enough time to do everything you'd like, or you don't have enough money
to acquire those things that you would like.
One thing is certain: with unlimited wants and limited resources, choices must be made.
And that's it, really.
To put it simply, economics studies choices.
What choices will people make about how to utilize THIS many resources, to satisfy THIS
many wants?
By definition, economics is the study of how people choose to use their scarce resources
in an attempt to satisfy their unlimited wants.
Well, what does this mean exactly?
As I read through the definition, the first unfamiliar term that I see is the word “scarce.”
What is scarcity?
Scarcity means that there's not enough of something -- a product, service, or resource
-- to satisfy everyone's wants, at a zero price.
This last part is important; it tells us that if I tried to provide the product for free,
there won't be enough to go around.
So how do I decide who gets the product?
Well, one way is to start charging money; those who are not as serious about acquiring
the product will drop out, those who are willing to pay the price tag will get the goods and
services.
Not a perfect system, mind you -- can you think of any drawbacks?
How about the fact that the wealthy get the goods and services, while the poor go without?
As I said, not a perfect system -- but hey, that's capitalism.
Anyway, that's how you recognize an economic good, or a good that is scarce: it will have
a price tag indicating that people are willing to pay to get the product.
If something is non-scarce, that is, there is enough to satisfy everyone's wants even
at a zero price, than there'd be no reason to charge for it.
Such a commodity would be known as a free good.
Can you think of any free goods?
Breathable air, maybe?
But even this may become scarce at some point.
OK, so economics is the study of how people choose to use THIS many resources in an attempt
to satisfy THIS many wants.
Well, how do people choose?
People make choices that they believe are in their own interest -- rational self-interest.
They look at the pros and cons (economists refer to benefits and costs) and decide whether,
on net, a choice is good for them.
Think about this: You're out for a walk and you find a wallet.
You look inside for ID and find that there's $1000.
What could you decide to do?
What are your possible choices?
Well, there are a lot of them: you could return the wallet and the money to the owner; you
could return the wallet without the money to the owner; you could keep the money and
leave the wallet where you found it; or you could just leave the whole thing...
There really are a lot of choices that you could make, but which choice is the rational
choice?
Well the rational choice depends on the individual decision-maker.
All choices are going to be rational to the person that makes them.
Whether you think it's right or wrong doesn't mean that it wasn't rational for someone else;
it just means that they had a different set of parameters that they based their decision
on.
Here's a challenge for you: Can you come up with any example of a decision that's not
rationally self-interested?
NEXT TIME: Resources TRANSCRIPT00EPISODE 2: SCARCITY & CHOICE