Transcript Natural Resources

Chapter 1
INTRODUCTION
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Gottheil — Principles of Economics, 7e
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Economic Principles
The earth’s resources
Renewable vs. nonrenewable
resources
Insatiable wants
Scarcity and choice
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Economic Principles
Economics is a social science
Economic model building
Microeconomic and
macroeconomic analysis
Positive and normative economics
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Natural Resources
A natural resource is a gift of
nature.
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Natural Resources
Examples of natural resources include:
• Land
• The uncultivated produce of land
• Water
• Minerals
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Natural Resources
There are two kinds of natural
resources:
• Renewable
• Nonrenewable
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Natural Resources
A renewable natural resource is one
that can be replenished.
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Natural Resources
Renewable natural resources include:
• Forests
• Sea and land animals
• Water
• Grasses and forage on rangelands
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Natural Resources
A nonrenewable natural resource is
one that cannot be replenished.
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Natural Resources
Nonrenewable natural resources
include:
• Metals and ores
• Oil and natural gas
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Natural Resources
Are we running out of natural
resources?
• We live in a finite world
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Natural Resources
Are we running out of natural
resources?
• Our knowledge of a resource’s relative
scarcity, particularly when considering its
availability in the not-too-distant future, is
less than exact.
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Natural Resources
Are we running out of natural
resources?
• Even though some resources are
renewable, the overproduction of lands
and overharvesting of resources to meet
the needs of a rapidly growing human
population can destroy our living
resources.
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Natural Resources
Are we running out of natural
resources?
• Properly managed conservation of
resources can both protect natural
resources and even increase their supply.
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Scarcity
Scarcity is the perpetual state of
insufficiency of resources to satisfy
people’s unlimited wants.
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Scarcity
Two competing facts create scarcity:
• Because we live on planet earth, the supply
of resources available to us is limited.
• Our wants for goods that are produced by
the limited resources is unlimited.
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Scarcity
Examples of things that are scarce:
• Super Bowl tickets
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Scarcity
Examples of things that are scarce:
• Meals at a fine restaurant
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Scarcity
Examples of things that are scarce:
• Admission to an elite university
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Scarcity
Examples of things that are not
scarce:
• Snow and ice in Alaska
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Scarcity
Examples of things that are not
scarce:
• Sand in a desert
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Scarcity
Some things that are not scarce can
become scarce.
• Air in the atmosphere is not scarce.
• Clean, unpolluted air is scarce in many
metropolitan areas, however.
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Scarcity and Consumers
No one will knowingly pay a positive price
for something that is not scarce.
If something is not scarce, there is enough
to satisfy everyone’s wants and the price
system is not necessary to decide who can
have it and who cannot.
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The Study of Economics
Economics is the study of how
people work together to transform
resources into goods and services
to satisfy their wants.
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The Study of Economics
Four central questions of economics:
• Who decides what goods to produce?
• How are goods produced?
• Who gets the goods produced?
• Who produces what?
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Consumer Sovereignty
Consumer sovereignty
• The Freedom of consumers to determine
what goods and services they will buy.
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Consumer Sovereignty
Consumer sovereignty affects the
economy in several ways.
• Consumer decisions ultimately determine
what goods and services the economy will
produce.
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Consumer Sovereignty
Consumer sovereignty affects the
economy in several ways.
• Consumer decisions determine who gets
what goods.
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Economic Models
Economic models
• Economic models are simplified abstractions
of the real world.
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Economic Models
1. How can economic models be
expressed?
• Pictorially
• Graphically
• Algebraically
• Verbally
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Economic Models
Economists use models because the
world is too complex to fully and
comprehensively consider at one
time.
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Economic Models
Ceteris paribus
• Ceteris Paribus is a Latin phrase meaning
“everything else being equal.”
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Economic Models
The ceteris paribus assumption
allows economists to develop oneto-one, cause-and-effect
relationships in isolation.
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Economic Models
The role of ceteris paribus:
• Isolates one factor at a time in an experiment
or study.
• Allows researchers to identify cause-andeffect relationships removed from other
factors.
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EXHIBIT 1
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THE CIRCULAR FLOW MODEL
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Circular Flow Model
There are two principal players in the
circular flow model
• Households
• Firms
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Circular Flow Model
Households
• A household is an economic unit of one or
more persons, living under one roof, that has
a source of income and uses it in whatever
way it deems fit.
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Circular Flow Model
Firms
• A firm is an economic unit that produces
goods and services in the expectation of
selling them to households, other firms, or
the government.
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Circular Flow Model
Resource market
• The resource market is the market in which
households supply resources to firms.
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Circular Flow Model
These resources can include:
• Land
• Labor
• Capital
• Entrepreneurship
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Circular Flow Model
Firms pay for these resources with:
• Wages
• Rent
• Interest
• Profit
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Circular Flow Model
Product market
• The product market is the market in which
firms supply goods and services to
households.
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Circular Flow Model
Product market
• Households pay for goods and services they
buy in the product market with the income
they received from supplying resources in
the resource market.
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Circular Flow Model
Circular flow model
• In this model, households supply resources
to firms, and firms supply goods and
services to households.
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Micro vs. Macro
The study of economics is divided into
two areas
• Microeconomics
• Macroeconomics
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Micro vs. Macro
Macroeconomics
• Macroeconomics analyzes the behavior of
the market as a whole.
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Micro vs. Macro
Microeconomics
• Microeconomics analyzes individual and
firm behavior, especially in market
conditions.
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Positive vs. Normative
Economics
There are two different approaches to
the study of economics
• Positive economics
• Normative economics
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Positive vs. Normative
Economics
Positive economics
• Positive economics is a subset of economics
that analyzes the way the economy actually
operates.
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Positive vs. Normative
Economics
Normative economics
• Normative economics is a subset of economics
founded on value judgments and leading to
assertions of what ought to be.
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Consumer Sovereignty
Invisible hand
• Adam Smith’s concept of the market as a hand
that guides firms that seek to satisfy their own
self-interest to produce those goods and
services that consumers want.
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