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SEEI Handout 1 – Write a SEEI paper in which you; State the most important concept you’ve encountered today. Elaborate upon why that concept is the most important for you. Exemplify how the concept manifests in your work or personal life. Illustrate (in words) the concept by creating an analogy or metaphor to explain it.

Scarcity is a situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants. It exists in all societies and at all income levels because human wants exceed what can be produced with the limited resources and time that nature makes available. Scarcity is not a shortage. It is also not poverty. High incomes do not reduce scarcity. This is the central concept in economics. All economic analysis derives from this condition. Resources or factors of production are inputs used in the production of things that people want. Production is any activity that results in the conversion of resources into products that can be used in consumption. Land is often called the natural resource, and consists of all the gifts of nature (minerals, trees etc.). Labor is the human resource that includes all productive contributions made by individuals who work, involving both mental and physical activities. Physical Capital or Capital is all manufactured resources that are used for production (construction crane). It also includes improvements to natural resources, such as irrigation ditches. Human Capital is the accumulated training and education workers receive that increases their productivity. Entrepreneurship refers to human resources that perform the functions of organizing, managing, and assembling the other factors of production to create and operate business ventures, and takes the risks associated with introducing new methods and other types of new thinking that could lead to more money income. Economic Goods: Goods that are scarce. The quantity of such goods desired exceeds the quantity that is available at a zero price. Scarcity requires choices be made. When one choice is made, then another is given up. Whenever you engage in any activity using any resource you are trading off the use of that resource for one or more alternative uses. For example, the more time devoted to studying economics, the less time that can be devoted to studying mathematics. Thus, a higher grade in economics has a “cost” of a lower history grade. This cost is known in economics as the Opportunity Cost. The highest valued, next-best alternative that must be sacrificed for the choice that was made. In economics, cost is always a forgone opportunity. The Production Possibilities Curve (PPC): A curve representing the maximum possible combinations of total output that could be produced assuming a fixed amount of resources of a given quality. A movement from one point to another on the PPC shows that some of one good must be given up to have more of another. Typically the opportunity cost of additional units of a good generally increases as society attempts to produce more of that good. As society takes more and more resources and applies them to the production of any one item, the opportunity cost increases for each additional unit produced.

 Assumptions Underlying the Production Possibilities Curve:

 Resources are fully employed.

 Production takes place over a specific time period—for example, one year.

 Resources are fixed in both quantity and quality.

 Technology does not change over this period of time. o Technology is defined as society’s pool of applied knowledge concerning how goods and services can be

produced. Efficiency: The case in which a given level of resources is used to produce the maximum output possible. It is also a situation in which a given output is produced at a minimum cost. An economy is efficient when it is on its PPC. An inefficient point is any point below the production possibilities curve. Economic growth is illustrated by an outward shift (expansion) of the production possibilities curve. When existing resources are used to produce capital goods, as opposed to say just consumer goods allows a society to produce more of all types of goods. The Trade-Off Between Consumption Goods and Capital Goods: To have more consumer goods in the future, we must produce capital goods today. Specialization and Greater Productivity: Specialization means working at a relatively well-defined, limited activity. It means the organization of economic activity so that what each person or region consumes is not identical to what each person or region produces. Specialization only makes sense because of the concept of Comparative Advantage. Comparative Advantage is the ability to produce a good or service at a lower opportunity cost compared to other producers. The relationship between Specialization and Comparative Advantage is the basis for exchange. If each person, region, and

country specializes in producing those things that they can produce relatively most efficiently, then it is possible to increase output without increasing the total amount of resources. Persons who are making decisions that further their self-interest will make choices that maximize the benefits net of opportunity cost. The result is that they choose their comparative advantage and end up specializing Absolute Advantage is the ability to produce more units of a good or service using a given quantity of resource inputs.