ECON 203 1st Edition Lecture 2Outline of Last Lecture II. Introduction to Economics A. Micro vs. MacroIII. Characteristics of economic modelsIV. Economic assumptionsV. Need-to-know terminologyOutline of Current Lecture ll. Scarcity lll. Opportunity Cost Current LectureScarcity => Conflict => Choices => Costs (Opportunity costs)- Scarcity- limited resources, unlimited wants. Everyone would like to allocate resources the way they see fit. If I were in charge, I’d have a bigger office, some office help, and a reception for my students, etc… If you were in charge, things would look different. When I talk about limited resources, I mean productive resources- things used to make stuff. There is only so much of this stuff to go around. With these limitations, each person would prefer that these resources be allocated in a way that makes him/her best off. Your preferences come in conflict with mine, andthe person next door. - Scarce goods- If good X is a scarce good for you, you are willing to give up something else of value in exchange for more of good X (need not be money). Do you want more than is freely available? If so, then that good is scarce for you. Although trash and pollution aren’t scarce; they aren’t goods in a productive sense. Economists call these ‘bads’, and talk of pollution reduction and trash removal as ‘goods’. These are considered scarce.-A scarce good for me may not be scarce for you. Our preferences show up here. The unlimited wants ofsociety’s individuals puts us in conflict with each other because of the resource scarcity noted earlier. We as a society have some difficult choices to make. Since everybody can’t get their way, and can’t be completely and totally happy and satisfied, who should we satisfy? How?These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-Most often society allows competition to settle the allocation problem. If you want a resource or the right to decide how to allocate it, be the one willing to trade the most for that right. If it is a painting, place the highest bid. There are other allocation schemes, each with benefits and costs, some well hidden.- Opportunity cost- the highest valued foregone alternative. The opportunity cost of activity X can best be answered with the question “what would I have done instead if I hadn’t done activity X?”-Every time a choice is made a cost is incurred. The cost need not be money, and usually won’t