hi everybody Jacob Reed here from revieweecon.com today we're going to be starting off a series of videos that cover everything you need to know for your microeconomics exams our first topic is scarcity the fundamental problem in economics if after watching this video you still need a little more help head over to review econ.com and pick up the total review booklet it has everything you need to know to Ace your microeconomics or macroeconomics AP exam now let's get into the content first off we need a definition of scarcity scarcity is the inability of our limited resources to satisfy our unlimited wants human beings want a lot of things and there just aren't enough resources to give us all of those things if there is less of an item than is wanted of that item that item is scarce there isn't enough food in this world for everybody who wants it there aren't enough brand new iPhones for everybody who wants one of those and there aren't enough sports cars for everybody who wants one of those all societies face scarcity scarcity is the fundamental problem that we study here in economics we know that an item is going to be scarce if there is less of it than people want of it typically items that are scarce will have a positive price even if that's a very low positive price scarce items have an opportunity cost which means that you have to give something up in order to get them in our society goods and services are scarce Goods at your local grocery are scarce but digital Goods on the internet are also scarce and services like a haircut are also scarce now not every item in this world is scarce if there's more of something than people want or need that item is not scarce air for example is not scarce because there's plenty to go around for everybody who wants it if an item has a negative price that item is also not scarce trash for example you pay to get rid of it is not scarce or if something can be obtained without a cost that item is also not scarce you should also be aware that already established knowledge is not scarce because it is non-rival which means that if I gain some already established knowledge that established knowledge is also available for you and my knowing it doesn't make it more difficult for you to know it now the reason why goods and services are scarce in our society is because of the resources that are used to make those goods and services are also scarce and every good and every service within our society requires four resources in order to be produced our first resource is called land land are the gifts from nature it is also called natural resources it can be the minerals and the dirt and the soil or it can be the rain from the sky or the sunlight all goods and services require some land in order to be produced the next resource is labor labor is the mental or physical work of human beings and all goods and services require a person to work in order to make them the third resource we have is called physical capital sometimes just called Capital those are Goods that are used to produce other goods and services they're often machines and tools it could be something as complicated as an industrial robot or a pair of scissors in the hands of a barber and the last resource is entrepreneurship entrepreneurs take land labor and capital take a huge risk mix them together and produce a good or service seeking a profit the owner of businesses within our society are entrepreneurs and those are our factors of production or resources and the reason why goods and services are scarce is because those resources needed to produce our goods and services are also scarce so because we have scarcity allocating or deciding where we're going to put our different resources is going to involve some trade-offs if I use my labor to play more video games I am going to incur a trade-off and that trade-off could come in the form of doing less yard work but those trade-offs aren't just in our personal lives businesses face those trade-offs too if Apple produces more laptops it's going to have fewer resources to be able to produce their cell phones and so given those trade-offs individuals and businesses need to decide how they're going to best use their scarce resources now some students will get confused between scarcity and shortage they're not the same thing when an item is scarce as I've said there is less of that item available Than People desire for that item shortage on the other hand means that the quantity supplied is less than the quantity demanded at the current price and when there's a shortage as you're going to learn in unit 2 we either see the price increase or we're going to run out of the item and there will be none left and there you have it that's the first topic you need to know in this class that's it for now I'll see you all next time