SCARCITY, OPPORTUNITY COST, PPC, DEMAND AND SUPPLY

“The great virtue of a free market is that it enables people who hate each other, or who are from vastly different religious or ethnic backgrounds, to cooperate economically. Government intervention can’t do that. Politics exacerbates and magnifies differences.”

Milton Friedman, New Perspectives Quarterly, 2006: 18.

SCARCITY AND CHOICE

• Scarcity and choice are the two essential ingredients of an economic topic.

• Goods are scarce because desire for them far outstrips their availability from nature.

• Scarcity forces us to choose among available alternatives.

SCARCITY AND CHOICE

Scarce GoodsFood (Bread, Milk, Meat, Eggs, Vegetables, Coffee, etc.)Clothing (Shirts, Blouses, Pants, Shoes Socks, Sweaters, Coats)Household Goods (Tables, Beds, Chairs, Rugs, Dressers, TV sets, etc.)EducationNational DefenseClean AirPleasant Environment (trees, lakes, rivers, open spaces, etc.)Pleasant working conditions

Limited ResourcesLand (various degrees of fertility)Natural Resources (Trees, Rivers, Minerals, Oceans, etc.)Machines and other human-made physical resourcesTechnology (physical and scientific “recipes” of history)Human Resources (the knowledge, skill, and talent of individuals)

U N D E R S TA N D I N G P E R S O N A L F I N A N C E

CHOICES

NECESSITIES

• Bare essentials required universally for subsistence or survival, or for maintaining a certain minimum standard-of-living.

LUXURIES

• Products and services that are non-essential, and are therefore in greater demand when incomes are high. In some countries, a tax is imposed on purchases of luxury goods (luxury tax).

YOUR CHOICE

- Food- Car- Home- Cell Phone- Life Insurance- Individual Retirement Plan (IRA)- Boat- Eating at a restaurant- Education- Tires for your car- Gas for your car- Fur coat

- Liquor- Vacation- Car Insurance- Electricity- Car Repair- Clothing- Medical Insurance- Dining Furniture- Bedroom Furniture- Living room Furniture- Toiletries- Medicine- Entertainment- Television

THE NATURE OF MONEY

• Three types of money• Commodity is the exchange of items in need, bartering,

trading, e.g., precious stones, salt, livestock, etc.• Representative money is based on some item of value,

for example, gold or silver.• Fiat money is money that is deemed legal tender by the

government, and it is not based on or convertible into a precious metal.

• The fractional-reserve system

Slide 10

HOW MONEY IS CREATED

• Printing currency and creating money are two different things.

• Money is actually created by the interaction of the demand for it, banks’ use of it, and the Federal Reserve’s supply and control of it.

Slide 11

THE MODERN DAY PLAGUE- PROGRESSIVISM

The Presidents who saddled us with this problem and debt

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Financial Policy Socialism and pork-barrel spending change the face of America. $787,000,000,000 + $350,000,000,000 left over from Bush administration

spending bill passed that increased debt when coupled with the Bush bail-out to $1,487,000,000,000. More money spent than the first 200 years of America including wars. These bills were left open-ended to be re-funded when necessary.- $787 billion bill had 15 hours of review. Lobbyists got it before Congress.- OMB figures said with the interest and principal together the American public will repay $3,750,000,000,000 over next 30 years.- Forced banks to take the money and refuses to allow them to pay the money back. Federal government wants to control the banks. Changed their preferred stock status to common stock so the fed. gov’t would have control over the banks. The banks used the money to buy other banks.- As of 13 Apr 09, the national debt is $10.626 trillion dollars, $175,000 for every taxpayer. 0n 14 Aug 09 it was $11.6 trillion.- As of 13 Jul 09 for the first time in history, the deficit is $1 trillion dollars and 23% of our GDP is foreign debt. Russian President Medvedev proposes a new world supranational currency to replace the dollar.

THE FACE OF AMERICA CHANGES

“Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a ‘united future world currency,” reports Bloomberg news service. Agence France Presse reports: “Even if Russia’s call for a global currency failed to gain much traction at a G8 summit, President Dmitry Medvedev took home a coin meant to symbolize that the dream may one day come true.” 10 Jul 09

CURRENT EVENT NECESSITIES

• Required every chapter before the test date• Cut and paste the article from the source with the

following:• Publication name and date• Title and author of article• The article (minimum 18 size font)• Discussion question developed from the article• Saved to a thumb drive/flash drive for presentation on my

computer• One student of the group presents the article and will be done

on a rotating basis

• These are the publications I would like to see used because they do not require a subscription:• Investor’s Business Daily- http://news.investors.com/ • Bloomberg Businessweek- http://www.businessweek.com/