Define the concept of scarcity: Scarcity: The goods available are too few to satisfy individuals’ desires. Scarcity is a central concept in economics. Resources are scarce if any individual would prefer to have more of that good or service than they already have. Most goods and services are scarce – those that are not are known as free goods. Where goods are scarce it is necessary for society to make choices as to how they are allocated and used. Economists study (among other things) how societies perform the optimal allocation of these resources. For example, we may all want to own gold jewelry. However, the amount of gold available is limited, so it is necessary to make choices as to how it is allocated. In a market economy, this is achieved by trade. Individuals trade resources between themselves to reallocate resources to where they are most wanted. In a smoothly operating market system, the rate of exchange between different resources or prices will adjust so that demand is equal to supply.
One of the roles of the economist is to discover the relationship between demand and supply and develop mechanisms (such as pricing, incentives, or penalties) to achieve an optimal outcome (in terms of consumer welfare) between supply and demand. “Substantives” economists and economic anthropologists have argued that “scarcity” is a social construct and not a universal. Certain intangible goods are likely to remain scarce by definition or by design; examples include awards generated by honors systems, fame, and membership of elites. These things are said to have scarcity value; that is to say, all or most of their value is derived from their scarcity. Define the concepts of marginal benefit / marginal cost. What is the relationship between marginal benefit/cost and scarcity? Marginal benefit is the benefit a person receives from consuming one more unit of a good or service.
It is measured as the maximum amount that a person is willing to pay for one more unit of the good or service. Examples: Suppose that you see three movies a week. The maximum amount that you are willing to pay to see the first movie is $10, to see the second movie is $8, and to see the third movie is $6. The marginal benefit of the first movie is $10, the second movie is $8, and the third movie is $6. Marginal Cost: Marginal cost is the opportunity cost of producing one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output. An example of this would be when Henry produces his third table in a week he gives up producing two bookshelves. The marginal cost of the third table is two bookshelves. The relationship between marginal benefit, marginal cost, and scarcity can be perceived as making decisions that provide the greatest possible return from the resources available, people and organizations must weigh the benefits and costs of using their resources to do a little more of some things and a little less of others.
Prices start at $12
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For example, to use their time effectively, students must weigh the additional benefits and costs of spending another hour studying economics rather than listening to music or talking with friends. School officials must decide whether to use some school funds to buy more books for the library, more helmets for the football team, or more equipment for teachers to use in their classrooms. Company managers and directors must choose which products to make and whether to increase or decrease the amount they produce. The President, Congress, and other government officials must decide which public spending programs to increase and which ones to decrease. Focusing on changes in benefits and comparing them to changes in costs is a way of thinking that distinguishes economics from most social sciences. In applying this approach, students should realize that it is impossible to alter how resources were used in the past. Instead, past decisions only establish the starting points for current decisions about whether to increase, decrease, or leave unchanged resource levels devoted to different activities.
Discuss how you can increase your wealth accumulation score by using the concept of marginal benefit/cost. Wealth is not acquired through addition. It is acquired through multiplication. Very few fortunes have been made by adding up paychecks and overtime. However, it is a fact that over time, very wealthy individuals have an average allocation to stocks that is above the norm. Most have achieved their fortunes by compounding a moderate but consistent rate of return over a long period of time. To accumulate a significant amount of wealth during my lifetime, I must first save something and then exercise some amount of control over one of two factors: my long-term rate of return, or the time horizon over which I compound my wealth. In increasing the long-term annual return the best way to increase the annual return over time is to allocate a larger fraction of my funds, on average, to higher return types of investments such as stocks. Increasing the time horizon the best way to increase the time horizon over which I compound wealth is simply to start saving and investing as early and consistently as possible.
The higher the compound annual rate of return, or the greater the number of years to retirement, the more dramatic the effect that an early start will have on the ending wealth. Discuss the concepts of opportunity benefit/opportunity cost. Definition: The opportunity cost of an action is the highest-valued alternative forgone. The opportunity cost of undertaking an activity is the benefit forgone by undertaking that activity. The benefit forgone is the benefit that you might have gained from choosing the next-best alternative. To obtain the benefit of something, you must give up (forgo) something else–namely, the next best alternative. All activities that have the next-best alternative have an opportunity cost. Opportunity cost is the basis of cost/benefit economic reasoning; it is the benefit forgone, or the cost, of the next-best alternative to the activity you’ve chosen. In economic reasoning, that cost is less than the benefit of what you’ve chosen. An example of this would be: Suppose you have the choice of seeing a movie, playing a game of tennis, or reading a book.
If you choose to see a movie then you cannot play a game of tennis or read a book. The opportunity cost of seeing the movie is the best alternative you forgo. If the best alternative is reading a book, then the opportunity cost of seeing the movie is reading a book. Benefit: (1.) advantage: something that has a good effect or promotes well-being They eventually reaped the benefits of all their hard work. (2.) business extra employee compensation: compensation over and above salary given to some employees or partially paid for by the employing company, e.g., health insurance, retirement pay, or stock options. What opportunity costs/benefits might you have to sacrifice in improving your wealth accumulation score? To improve my wealth accumulation score is saving. The key rule of saving is this. Don’t let savings adjust to my spending needs. Let my spending adjust to my savings needs. It will help tremendously if my husband and I budget a certain amount of saving monthly, and make our investments first as if we were paying a bill.
If we wait until all the bills are paid and all the spending is done, the result may be that we have nothing meaningful left to invest. Financial planners often advise that an investor should pay off all credit cards before starting an investment program. If the interest rate on credit card debt is quite high, or the debt is large in relation to our income, this is a correct approach. But if we own a credit card, we also know that the balance on a credit card tends to expand with the limit on the card. For most people, paying a credit card down (particularly a low-interest one) is the first step toward spending more money. The best strategy to manage credit card debt is to minimize the number of cards we carry. But if we ever want to save, then start saving now. Make our monthly investments when we pay your other bills, and treat them as if they had a substantial late-payment penalty. The penalty for starting a savings program late really is enormous.
What effect does “price” have on determining the amount of product that you demand and how might it be related to the concept of marginality and your ability to improve your wealth accumulation score? When there’s a shortage, the price goes up. When there’s a surplus, the price goes down. Much of this book will be devoted to analyzing how the market works like an invisible hand, guiding economic forces to coordinate individual actions and allocate scarce resources. The invisible hand is the price mechanism, the rise, and fall of prices that guide our actions in a market. Concept of marginality: Economizing takes place at the last (or marginal) unit of input or output. Applies to both producer and consumer it examines the economics of consuming or producing one more unit (the marginal unit) beyond current consumption or production. My husband and I can improve our wealth accumulation score by taking advantage of surpluses and looking down the timeline before jumping into something. We need to start saving now for our retirement has inflation goes up so does the amount of money we need to retire.