Professional Documents
Culture Documents
What is Economics?
Economizing Problem
“Beautiful
leaf!”
MICROECONOMICS...
Great Forest!
Production
Microeconomics Macroeconomics
How much steel Total industrial output
How much office space
.
Gross Domestic Product
Prices
Price of individual goods Price of medical care
Rate of inflation
Employment
Jobs in the steel industry Total number of jobs
Economy’s unemployment
Is the following Micro or Macro?
1. The price of digital cameras increased 5% last year.
2. Unemployment was 5.4% for the U.S. workforce.
3. Unemployment in the auto industry was 8% last year.
4. Duck National Bank lowered its interest rates on CDs to 8%.
5. The Inflation rate rose to 2.7% last year.
6. The computer industry laid off 8% of its workers last year.
7. The price of gasoline rose 25% last year.
“What forest, check
these branches,
limbs, and leaves.”
THE FOUNDATION OF ECONOMICS
SOCIETY HAS VIRTUALLY UNLIMITED WANTS...
UTILITY [satisfaction]
satisfaction
GOODS & SERVICES PROVIDE...
UTILITY[satisfaction]
satisfaction
LUXURIES
Luxuries
V.
NECESSITIES
.
Opportunity Cost
2nd Choice
Sarah B Krisily
The Bachelor
Charlie O’Connell
And – As 40 Million Watched,
Joe Millionaire chose Zora over Sarah
Economic Way of Thinking
Do the Benefits outweigh the cost?
Scales of Economics
Best Choice)
As you recall, these are the choices
on Saturday night
• Go on a Date
• Hang out with friends
• Watch TV
• Read a good book
• Hang out with parents
• Go to bed early
You choose the one that will give the most
satisfaction for the price that has to be paid
The ranking’s are…
1 • Go on a Date Obviously you
3 • Hang out with his friends do not go
through this
6 • Watch TV much thought
2 • Read a good book when making a
4 • Hang out with parents decision…
5 • Go to bed early
What is the opportunity cost of
going on the date?
Look again at the definition of
Opportunity Cost
Property Resources
LAND RENTAL INCOME
LABOR WAGES
ENTREPRENEUR PROFIT & LOSS
When It comes to Smoking, Don’t Let Your
Peers Knock You Down To Their Level
“Don’t smoke,
don’t Smoke.”
Bring Your Peers Up To Your Level
Review
• What is the fundamental economic
problem?
• What does TANSTAAFL mean?
• Every choice has a __?__.
• Your next best use of time, $,
resources?
• Why did the chicken cross the road?
• What are the 4 Factors of
production, with examples please?
• How does economics help people
make better decisions?
5 PPC Concepts
• Scarcity is represented by the frontier line.
5. Economic growth
And How Is Economic Growth Demonstrated
on a Graph? Like This
Economic Growth
C [Ability to produce a larger
total output over time]
Capital Goods
A
b
a
0 B D
Consumer Goods
PRODUCTION POSSIBILITIES
Assumes...
Efficiency
Fixed Resources
Fixed Technology for example...
Two Products
or
400,000 Pizzas
Using all of our resources, to
get some pizza, we must give
up some robot arms!
for example...
PRODUCTION POSSIBILITIES
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
PRODUCTION POSSIBILITIES
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
graphical form
(thousands)
Robots
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
graphical form
(thousands)
Robots
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
graphical form
(thousands)
Robots
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
graphical form
(thousands)
Robots
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
graphical form
(thousands)
Robots
in table form
PIZZA 0 1 2 3 4
(in hundred thousands)
Robots 10 9 7 4 0
(in thousands)
graphical form
(thousands)
Robots
Q 14
13
Robots (thousands) 12 Unattainable
11 A
10 B
9 C W
8
7
6
D Attainable
5 & Efficient
4 Attainable
3 but
2 Inefficient
1 E
1 2 3 4 5 6 7 8
Pizzas (hundred thousands) Q
PRODUCTION POSSIBILITIES
Q 14
13 Notes...
Robots (thousands) 12 Unattainable
LAW OF INCREASING
11 A OPPORTUNITY
B COSTS
10
9 C W
8
7
6
D Attainable
5
4
Attainable & Efficient
3 but
2 Inefficient
1 E
1 2 3 4 5 6 7 8
Pizzas (hundred thousands) Q
PRODUCTION POSSIBILITIES
Q 14 Notes...
13
12
LAW OF INCREASING
Unattainable
11 A OPPORTUNITY COSTS
Robots (thousands)
Economic
B resources are
10
not completely adapt-
9 C
able to other uses. W
8
7 D
It will be a CONCAVE curve Attainable
6
5 & Efficient
Attainable
4
3
but
2 Inefficient
1 E
1 2 3 4 5 6 7 8
Pizzas (hundred thousands) Q
PRODUCTION POSSIBILITIES
Q 14 Unemployment &
13
Robots (thousands) 12
11
Underemployment
10 Shown by Point U
9
8 More of either or
7
6
both is possible
5 U
4
3
2
1
1 2 3 4 5 6 7 8 Q
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
Notes...
Q 14 Economic Growth
13
The ability to produce
12
a larger total output - a
Robots (thousands)
11
10 rightward shift of the
9 production possibilities
8 curve caused by...
7
6
5
4
3
2
1
1 2 3 4 5 6 7 8 Q
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
Q 14 Notes...
13 Economic Growth
12 1. Increase in resources -
Robots (thousands)
11
10
9
8 2. Better resource quality -
7
6
5
4 More of either or
3. Technological advances -
3 both is possible
2
1
1 2 3 4 5 6 7 8 Q
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
Q 14 A’
13 B’ Economic
12
Robots (thousands)
11 Growth
10
C’
9
8
7
6 D’
5
4
3
2
1 E’
1 2 3 4 5 6 7 8 Q
Radios (hundred thousands)
PRODUCTION POSSIBILITIES
Two Examples of Economic Growth
CURVE
CONSUMPTION
FAVORING FAVORING
PRESENT GOODS FUTURE GOODS
CURRENT CONSUMPTION
Goods for the Future
FUTURE FUTURE
CURVE CURVE
CONSUMPTION CURRENT
CURVE
War Goods
C United States
F [Beginning of WWII]
Civilian Goods
Going to War(Russia).
War(Russia) Russia, on the other hand, entered WWII at full capacity.
So their preparedness entailed a shifting of resources from civilian goods and a drop in
their standard of living.
The U.S. position was similar as we entered the Viet Nam War at full employment.
We increased both military spending and domestic spending on the “War on
Poverty.” Our attempt to achieve more “guns and butter” in a FE economy was
doomed. We were trying to spend beyond capacity and ended up with double
digit inflation in the 1970s.
C
War Goods Russia
D [Beginning of WWII]
Civilian Goods
C
AB PPC
A
C G
P
I
T
A D
L
G F
O
O
D E
S
Consumer Goods
recession F
40. At what letter is there unemployment [recession]?
41. What letters represent resources being used in their
most productive manner?
manner [full employment, full
production, and best available technology] A,B,C,D,E
42. What letter represents an improvement in technology,
technology
therefore a new PPC frontier line? G
43. The (straight line/curve) illustrates the “line of increasing cost”?
44. The (straight line/curve) illustrates the “law of constant cost.”
45. At what letter would there be the most economic growth in
the future if a country were producing there now? A
46. What is the opportunity cost when moving from “C” to “D”; Capital
Consumer E to B; D no
B & do we have to give anything up when moving from F to D?
PPC Practice Questions
1. An economy that is fully employing all its productive
resources but allocating less to investment than
to consumption will be at which of the following
positions on the PPC to the right?
a. A b. B c. C d. D e. E
Water Wind
“Hired Help”
3. Capital Resources – all “man-made inputs” used to produce
consumer products (machinery, physical plants, & tools).
tools)
A. Capital goods – goods [machinery, buildings, & tools] used to
produce other goods.
goods [crane, Ford plant, hammer]
.
Rent Wages Interest Profits
Land Labor Capital Entrepreneur
Notes...
INVESTMENT
REAL CAPITAL
.
FINANCIAL CAPITAL
Can’t produce anything [stocks, bonds, & money]
directly with these
The Harley Hog Circular Flow
Resource Market
Product Market
Hog CIRCULAR FLOW MODEL
RESOURCE MARKET
1
2
Mechanic
BUSINESSES
Flow 4. Goods/services HOUSEHOLDS
Flow 3: Consumer expenditures
PRODUCT MARKET
3
4
Hog CIRCULAR FLOW MODEL
RESOURCE MARKET
1
2
Mechanic
BUSINESSES
Flow 4. Goods/services HOUSEHOLDS
Flow 3: Consumer expenditures
Flow 1: Land, Labor, Capital, Entrepreneur
Flow 2: Rent, Wages, Interest, Profits
PRODUCT MARKET
3
4
CIRCULAR FLOW MODEL
RESOURCE MARKET
BUSINESSES HOUSEHOLDS
Mechanic
Resource Market
RESOURCE
MARKET
Mechanic
Householders
Businesses Show me the money!
BUSINESSES & you’ll get this hog.
HOUSEHOLDS
Resource Market
RESOURCE
MARKET
Mechanic I demanded this hog
and had to pay for it.
Householders
Businesses Show me the money!
BUSINESSES & you’ll get this hog.
HOUSEHOLDS
Resource Market
RESOURCE
HH supply hog labor MARKET
Mechanic I demanded this hog
and had to pay for it.
Resource Market
$ COSTS $ INCOMES
HOUSEHOLDS
GOODS & GOODS &
PRODUCT MARKET
SERVICES SERVICES
CIRCULAR FLOW MODEL
Resource Market
$ COSTS $ INCOMES
I supplied hog
BUSINESSES labor & was paid..
HOUSEHOLDS
GOODS & GOODS &
PRODUCT MARKET
SERVICES SERVICES
CIRCULAR FLOW MODEL
$ COSTS $ INCOMES
RESOURCE
MARKET
RESOURCES INPUTS
BUSINESSES HOUSEHOLDS
PRODUCT
MARKET
$ REVENUE $ CONSUMPTION
The Circular-Flow Diagram
Product Market
1
2
Resource Market
The Circular-Flow Diagram
Resource Market
2
What flow are the following?
4A. Goods/services?
Businesses 3B. Consumer expenditures?
1C. Land, labor, capital and
entrepreneurial ability?
2
F. Rent, wages, interest,
Businesses and profits? Households
Product Market
NS 56-59
Fuzzy Wuzzy
YUGO
Only way to get up a hill
Which would begin to rust while still in the show room,