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Overview of Economics and

Scarcity
Dates Jan 31, 2021

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Topic Economics and Scarcity

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Economics and Scarcity

Economics is a social science concerned with the production, distribution and
consumption of goods and services. Economics can be broken down into two:
macroeconomics, which concentrates on behavior of the economy as a whole,
and microeconomics, which focuses on individual people and businesses.

Overview of Economics and Scarcity

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 Resources are the basis for producing the food, shelter, medical care, and
luxury goods that we want.
These resources are scarce, in the sense that there are not enough of them to
produce everything we need and desire.

Scarcity forces us to choose among competing uses for society's resources.

What to produce? And how to distribute this output to society's citizens?

(Most basic economic choices to be made due to scarcity.)

Production Posibilities

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The easiest way to think of the problem of societal choice is by looking at a basic

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economic concept and graph called production possibilities curve.

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Production possibilities shows the maximum amounts of two different goods that

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can possibly be produced using society's scarce resources.
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In examining production possibilities, we must make these simplifying

assumptions about our economy:

Overview of Economics and Scarcity

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 1. All available resources are used fully.
So that no workers are unemployed or no factory buildings are idle.

Source: 3.18m million - employed PDP, 2018

ex. Build, Build, Build program in the Philippines - in 2018, around 600,000
applicants were employed according to DOLE, with an additional 3.18M
Filipinos working in transportation industry and storage.

2. All available resources are used efficiently.

Efficiency means that we use our knowledge and technology to produce the

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maximum amount of output with these resources.

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These first two assumptions mean that our economy is doing the best that it can

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and it is operating fully and efficiently.

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3. The quantity and quality of available resources are
not changing during the period of analysis.
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This means that over the current time period, workers do not begin new
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training programs to make them more productive, new natural resources are
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not discovered.

4. Technology is not changing during our period of

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analysis.
Technological change — which might give us a better means of producing
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more goods with the same resources — is not occuring.

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Overview of Economics and Scarcity

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 Table 1.1 Production Possibilities Table

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Note that each alternative from point A through F represents one possible

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combination of two goods that we could produce.

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Figure 11. Production Possibilities Curve

The data from the previous table are plotted.

Connecting all points gives us a production possibilities curve which shows the
alternative combinations of maximum quantities of bread and roses that our
country is capable of producing.

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This graphical illustration shows an outward shift of the production possibilities

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curve, leading to economic growth.

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Economic growth may occur if the quality or quantity of society's resources

increases or if new technologies are developed, so we can produce more output
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with our available resources.

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Efficiency and Equity

Understanding demand and supply provide better insight into the working of
the market economy and its PPF (production possibilities frontier), because
demand and supply determines how much to be produced for the product.
And high price create thriftiness.

Prices of the products create efficient means of allocation and distribution.

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 Equity is a value-laden concept. Fairness is what it means.

Market Failure and Glimpse of the Future

Many economists agree that the marketplace performs many useful functions:

To produce the maximum amount of output using scarce resoruces.

Provides economic incentives

Highly productive

When agents on either side of the market find themselves disadvantaged in the

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market process, they frequently attempt to induce the government to intervene

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on their behalf.

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Government plays a key role in disciplining the market process to assure that all

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societal needs are met.
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1. Public Goods and Services
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Public goods and services have unique characteristics that make it unlikely that
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the market will provide enough of them

The use of these goods by some of us does not keep others from using them.
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The provision of public goods and services is an important appropriate tool for
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government.

2. Spillover
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Economic spillovers occur when some cost (-) or benefit (+) related to
production spillovers onto people not involved in the production or consumption
of the good

436 state universities and colleges in the Philippines CHED, 2019 - example
of spillover benefit

3. Inequity
means unfair/unjust

Overview of Economics and Scarcity

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 arising from poor governance or corruption

Causes:

discrimination

inequality of income distribution

poverty

4. Market Power
The ability of a supllier to influence the market price of its product.

Competition protects consumers from unreasonable prices.

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Pure competition discourages market power because there are many producers

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selling a standardized product to many buyers.

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In Module 8 in Managerial Economics, a firm that has market power produces
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less than the socially efficient level of output because it charges a price that
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exceeds its marginal cost of production.
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5. Instability
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State of economic volatility

The factors that determine whether our nation is operating within the
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production possibilities curve or below it is dynamic.

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High and low employment affects production possibilities, and changes in

average price levels.
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Overview of Economics and Scarcity

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