1

Limits, Alternatives, and

Choices

McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction

LO1

Economics defined:

Economic wants exceed

productive capacity.

Use resources efficiently to

maximize fulfillment of
unlimited wants.

The Economic Perspective

Key features:

LO1

Scarcity and choice

Purposeful Behavior
Marginal Analysis

Scarcity and Choice

Resources are scarce

Choices must be made
Opportunity cost

LO1

Theres no free lunch

Purposeful Behavior

LO1

Rational self-interest
Utility
Desired outcomes

Marginal Analysis

LO1

Compare marginal benefit and

marginal cost

Marginal means extra

Theories, Principles, and Models

LO2

Economic principles and theories

Generalizations, so imprecise

Statements of economic
behavior supported by facts

Ceteris Paribus: Other-thingsequal assumption

Microeconomics and
Macroeconomics
Microeconomics

Macroeconomics

LO3

Decision making by individual

units

Aggregate, total

Positive and Normative Economics

Positive economics

Normative economics

LO3

Deals with economic facts

Subjective perspective of
economy

Societys Economizing Problem

Scarce resources inputs used to
produce other goods and services

Land natural resources

Labor most workers
Capital manufactured inputs

LO4

Not money
Investment spending on production
& accumulation of capital

Societys Economizing Problem

Entrepreneurial ability

LO4

Takes initiative
Decision maker
Innovator
Takes risk

Key to economic growth

Production Possibilities Model

Shows maximum combinations of 2
goods that can be produced when
the economy is efficient.

LO5

Assumptions:

Full employment
Fixed resources
Fixed technology
Two goods

Production Possibilities Table

Production Alternatives
Type of Product

Pizzas

10

(in hundred thousands)

Industrial Robots
(in thousands)

Plot Points to Create Graph

LO5

A Growing Economy

Economic Growth

LO6

More resources
Improved resource quality
Technological advances

International Trade

LO6

Specialization
Increased production possibilities