Chapter 1

Alleviating Human Misery: The
Role of Economic Reasoning

Goods & Services
• Food, Clothing, Shelter, Transportation
• Health Care, Education
• Truth, Justice, and the Filipino Way

1-2

Resources • Labor • Capital • Technology 1-3 .

Scarcity Our Insatiable Wants Our Limited Means Scarcity Economic Problem 1-4 .

The Capacity of the Economy to Produce Gross Domestic Product total market value of all final goods and services produced within an economy during a specific time period 1-5 .

Production Possibilities Food (millions of tons) 100 A 90 B Z D 60 C 50 F 40 C’ Food Education 0 100 40 86 50 80 60 72 90 40 100 0 20 E 20 40 72 80 86 100 Education (millions of student years) 1-6 .

General and Specific Economic Growth Food (millions of tons) 100 100 Education (millions of student years) 1-7 .

The Opportunity Cost Principle Food (millions of tons) 100 90 A Z B D 60 C 50 F C’ 40 20 • There is no such thing as a free lunch • Increasing opportunity cost • The Optimal Combination of Goods and Services • Marginal Social Cost (MSC) • Marginal Social Benefit (MSB) • Cost-Benefit Analysis E 20 40 72 80 86 100 Education (millions of student years) 1-8 .

000 $1.00 $1.000 ($1/$1) x 100 = 100. or 2.00 $1.00 $1.000 2010 1.000 ($2/$1) x 100 = 200.00 2.000 2. or 1.Adjusting GDP for Inflation Year Production of Bread (Loaves) Price of Bread GDP in Current Dollars (1)x(2) Price Index Percentage and Decimal Forms Real GDP (2009 Dollars) (3)/(4) 2009 1.000 Two good example 1-9 .

65 1987 4.8 75.0 27518.472 9066.128.7 22665.1 35388.207 5423.6 104.043 5161.5 28010.93 1988 5.7 285.5 25386.0 282. Real per Capita (2000 Dollars) GDP.1 81.995.4 272.304.8 26667.9 31891.852 8329.7 266.4 253.89 2005 12.76 1993 6.17 1990 5.7 86.90 2000 9.747.79 1982 3.8 234.19 Adjusting GDP for Population Recession 1-10 .1 291.76 1989 5.337.536.0 96.28 1983 3.6 36.Population (Millions) GDP. 14.264.8 71.45 2007 13.3 24597.42 1992 6.36 1996 7.4 88.000 9817.713 6053.9 28558.4 109.685.2 34865.5 reserved.259 7835.0 102.4 34762.5 301.103.10 2006 13.2 22349.694 6742.299.0 100.933.816. Inc.556 6981.7 26027.462.9 296.82 11.6 260.04 1991 5.0 269.3 34663.590 7112.385 7336.28 1995 7.5 263.726 5189.268.89 Year Copyright ©2008 2010 by the McGraw-Hill Companies.01 1998 8.3 69.1 28435.807.4 29743.6 38.523.1 242.3 28226.207.3 33907.9 288.803.128.8 238.68 1985 4.71 2003 10.4 116.789.46 10.7 230.34 10.484. All rights304.6 227.67 11.54 2002 10.0 62.5 250.397.469.9 113.6 122.3 23148.6 236.38 2001 10.1 32837.7 65.960.4 78.959.7 92.414 8703.072.46 11.9 276.674.4 38.196 6475.9 93. Current Dollars (Billions) Price Index GDP.4 97.6 30131.7 245.8 106.224.5 119.2 90. Real 2000 dollars (Billions) 1980 2.6 240.8 293.20 2004 11.97 1981 3.5 247.9 84.404 10301.381 7532.3 28943.187 10048.868 9470.11 1997 8.739.298.119 5291.4 299.5 73.178.817.4 59.421.5 54.0 23010.3 279.33 1999 9.106 8031.6 256.2 232.28 1984 3.51 1986 4.9 36.3 95.648.657.675.913.21 1994 7.444 7100.7 30886.255.220.655 5813.250 6263.399 9890.8 37.2 67.

912 4.1 6.5 Developed Canada 32 1.6 64 439 6.389 4.8 80 France 61 0.794 3.Population Estimate 2006 (Millions) Annual Rate of Population Increase Population Density per Square Kilometer (2006) Per Capita Real GDP (2006) Percentage Annual Growth Rate of Real GDP (2006) Life Expectancy at Birth.0 39 3.6 65 Country Lesser-developed Average 1.6 350 38.4 159 454 6.610 11.1 236 24.2 72 Ethiopia 77 2.552 7.4 45 2.1 22 2.4 326 2.2 81 Switzerland 7 0.8 73 Egypt 74 1.8 74 Nigeria 144 2.4 373 637 9.611 2.6 77 161 10.9 52 India 1.0 51 Thailand 63 0.2 82 Singapore 4 3.0 81 Germany 82 -0.8 79 Italy 59 0.2 82 United Kingdom 61 0.3 78 China 1.9 81 Japan 128 0.833 9.1 54 6.5 68 Kenya 37 2.6 200 19.1 123 983 5.562 5.6 25.2 42 6.6 22 31.0 3.0 289 1.189 4.6 250 27.426 10.9 16 321 6.08 1-11 .4 80 Sweden 9 0.8 75 1.6 71 Philippines 86 2.674 2.3 74 Zambia 12 1.0 33 37.8 79 United States 299 1.992 2.894 2.1 70 Venezuela 27 1.388 28.262 4.6 187 35.9 78 3.474 2.630 1.2 47 Peru 28 1.8 111 23.6 71 Columbia 46 1.4 71 South Africa 47 1.7 64 Indonesia 223 1.2 124 2.8 22 5.311 0.7 31 5.1 53 Mexico 104 1.615 6.109 1. Latest Available Dates Chile 16 0.8 71 El Salvador 7 1.824 2.154 5.605 5.4 80 Average 0.6 140 1.317 6.

7 7.6 South Africa (2000) 3.2 55.9 Columbia (2004) 2.3 51.2 Peru (2002) 3.Country (Year of Study) Poorest 20 Percent Second 20 Percent Third 20 Percent Fourth 20 Percent Richest 20 Percent Chile (2003) 3.9 6.3 Indonesia (2005) 7.5 Kenya (1997) 6.6 14.8 40.8 21.4 10.4 16.8 21.7 51.2 22.8 49.8 14.6 19.2 12.3 60.6 22.1 Mexico (2004) 4.1 13.0 Zambia (2004) 3.9 Egypt (2004) 8.9 11.4 9.0% China (2004) 4.6 20.8% 60.7 16.7 Philippines (2003) 5.0 Japan (1993) 10.5 44.9 Ethiopia (2000) 9.2 23 39.0 9.2 13.1 11.0 20.2 8.1 5.6 21.7 Singapore (1998) 5.2 16.8 Average 7.3 16.0 49.5 12 16.3 20.3 8.5 39.6 7.7 17.9 23 36.3 9.7 22.8% 7.8 Italy (2000) 6.3 14.7 14.6 22 35.9 20.6 41.0 United States (2000) 5.9 France (1995) 7.5 42.7 15.3 12.9 12.7 7.2 Thailand (2002) 6.5 13.6 Switzerland (2000) 7.6 22.5 6.5 El Salvador (2002) 2.0 18.7 22.0 9.4 20.7 49.8 49..0 22.7 21.8 42.2 Germany (2000) 8.1 13.1 20.4 45.0 9.7 14.5 21.5 13.1 Lesser-developed Average Adjusting GDP for Distribution Developed 1-12 .7 22.7 17.7 12.8 55.3 Nigeria (2003) 5.6 17.3 United Kingdom (1999) 6.9 12.4 14.1 11.2 14 17.3 50.7 55.3 12.6 12.3 10.0 18.0 Sweden (2000) 9.4 45.7 56.2 17.1% 17.0 62.6 14.8 41.1 10.5 12.3% 11.4 India (2004) 8.2 19.3 9.2 12.0 20.5 41.3 22.7 36.8 Canada (2000) 7.2 16.

000 $2.000 $2.000 10.000 $2.000 $10.000 $2.Adjusting GDP for Distribution Annual Income Family A Annual Income Family B Annual Annual Annual Income Income Income Family Family Family C D E Annual Income of all Families Average Annual Family Income Alpha $2.000 $2.000 2.000 1-13 .000 Omega 0 0 0 0 10.

Causes of Poverty and Requisites of Economic Growth • Quality of the Labor Force • Stock of Capital and Capital Accumulation • Technology • Efficiency • Population 1-14 .

Can Governments Help? • Governments of LDCs      Private property rights Universal education Capital accumulation process Social infrastructure Population control • Governments of DCs  Loans and grants  Technical assistance  World Bank 1-15 .

00 100 $100 $2.00 75 $150 Currentdollar GDP $250 (Pb * Qb) + (Pf * Qf) = Current-dollar GDP 1-16 .Computing Current-dollar GDP Bread Year 2009 Pb Qb Fruit Punch PbQb Pf Qf PfQf $1.

00 150 $600 $900 1-17 .00 100 $100 $2.50 200 $300 $4.Adjusting GDP for Inflation Bread Year Pb Qb Fruit Punch PbQb Pf Qf 75 Currentdollar PfQf GDP $150 $250 2009 $1.00 2010 $1.

00 2010 $1.Adjusting GDP for Inflation Bread Fruit Punch Qf PfQf Currentdollar GDP 75 $150 $250 200 $300 $4.00 150 $600 $900 Qb PbQb 2009 $1.00 100 $100 $2.00 2010 $1.00 200 Year Pb Qb PbQb 2009 $1.00 100 $100 $2.50 Year Base Year Pb Pf Qf PfQf 75 $150 Real GDP $250 $200 $2.00 150 $300 $600 Pf 1-18 .

GDP Deflator GDP Deflatort = Current-dollar GDPt * 100 Real GDPt 1-19 .

Converting Current-dollar GDP to Real GDP Real GDPt = Current-dollar GDPt * 100 GDP Deflatort 1-20 .

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