The purpose of this web blog is to aid Macroeconomics students understand the basics of economics.
At the end of this lesson you will be able to explain and provide examples of the following terms:
Economics
Scarcity
Choice
Economic Interactions
Market
Economic interactions involve scarcity and choice. Time and income are limited, and people choose among alternatives every day. In this chapter, we study the choices people make when faced with a scarcity of resources and the economic interactions among people when they make their choices. We begin by looking at scarcity, choice, and interaction for individuals. We study consumer and producer decisions, learn about the gains from trade, and see how the same principles that guide interactions between individuals can be used to study interactions between countries. We then look at scarcity and choice for the economy as a whole, and introduce the production possibilities curve. We conclude by studying two alternative economic systems, the market economy and the command economy, and focusing on the role of prices
Before (or until) his widespread scandals, Tiger Wood was a famous athlete and his success in golf was used in many economics textbooks to explain certain economical terms such as scarcity, choice, economic interactions, financial crisis, and market. I am also using his story to interpret certain economic terms.
In the Spring Semester of 1996, when he was only 19, and a sophomore in college, Tiger Wood was faced with a choice: to continue college for an additional two years or to leave college and devote all his time to golf.
Doing both the college and the school was not an option because we have only 24 hours in a day and therefore, time is scarce. When he was sophomore, Tiger Wood had to make a choice, and by choosing one activity will incur a cost by giving up another activity. Choosing golf would certainly mean passing up the job opportunities that would inundate a college senior who was well trained in economics and business. Choosing the college, however, would mean passing up the potential tournament winnings and the guarantees of advertising endorsements that awaited a professional golfer.
Years later, Tiger proved that he made the right choice. In 1996, Tiger Wood was selected to be the Sportsman of the Year and in 1997, he won the Masters Tournament. Within 10 years, he had won 54 tournaments, 12 major championships, and almost $65 million in prize money. His endorsement income was much higher than all the other income. He earned $500 million over his first decade of play and was predicted to be the first athlete to make over a billion dollars in endorsement income.
The secret to such a rich reward from Tiger’s golf talents was his skills to interact with people. Golf fans enjoyed watching him play and were willing to pay a lot of money simply to interact with him. Many fans paid a large amount of money to interact with him by sitting in the gallery as he played in tournaments. Corporate excetuives from Nike, American Express, and General Motors interacted with him and paid him millions of dollars to endorse their products.
Tiger Woods’ story is a story of economics not because of the money he earned but his story illustrates the idea that lies at the center of economics. The economics idea is that “people make purposeful choices with scares resources and interact with others when they make these choices". All economists will agree that the economics is the study of how people deal with scarcity.
Scarcity: Scarcity is a situation in which the quantity of resources is insufficient to meet all wants. It is a situation in which our resources are limited-even a rich athlete like Tiger Wood faced the scarcity of time. Scarcity means that people must make a choice to forgo, or gie up, one things in favor of another. We always face scarcity of something. All CEOs such as Wal-Mart CEO Mike Duke, Cocal Cola CEO Muhtar Kent, Bill Gates of Micro Soft face scarcity.
All simple and ordinary people also face scarcity. For example, a college student may have to find a job to support her family instead of going to college, a worker may want to delay his retirement to hold onto his job that has health benefits, a student may have to choose his allocated time between two courses. As you read this blog, you may find yourself reflecting on decisions that you have to make in your life- whether to take finance or business communication in the upcoming semester. The more time you spend in studying biology, the less time you will have available to spend on economics.
Can you come up with an example of scarcity?
