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Copyright 2008 The McGraw-Hill Companies1-1
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
1Limits, Alternatives, and Choices
Copyright 2008 The McGraw-Hill Companies1-2
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Chapter Objectives• Economics Defined
–Economic Perspective
• Role of Economic Theory• Microeconomics and
Macroeconomics• Scarce Resources
–The Economizing Problem
• Production Possibilities
O 1.1
Copyright 2008 The McGraw-Hill Companies1-3
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
The Economic Perspective
• Scarcity and Choice–Opportunity Cost
• Purposeful Behavior–Utility
• Marginal Analysis–Marginal Benefits
–Marginal Costs
O 1.2
O 1.3
Copyright 2008 The McGraw-Hill Companies1-4
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Theories Principles and Models
• The Scientific Method• Economic Principle
–Generalizations–Other-Things-Equal Assumption (ceteris paribus)
–Graphical Expression
O 1.4
Copyright 2008 The McGraw-Hill Companies1-5
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Macro and Microeconomics
• Macroeconomics–Aggregate
• Microeconomics–Individual Units
• Positive Economics
• Normative Economics
Copyright 2008 The McGraw-Hill Companies1-6
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Individual’s Economizing Problem
• Limited Income• Unlimited Wants• A Budget Line• Attainable and Unattainable
Combinations• Tradeoffs & Opportunity
Costs• Choice• Income Change
O 1.5
W 1.1
Copyright 2008 The McGraw-Hill Companies1-7
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Individual’s Economizing Problem
Average Income, Selected NationsPer Capita Income 2004
SwitzerlandUnited StatesJapanFranceSouth KoreaMexicoBrazilChinaPakistanNigeriaRwandaLiberia
Source: World Bank
$48,23041,40037,18030,09013,980
6,7703,0901,290
600390220110
Country
GLOBAL PERSPECTIVE
Copyright 2008 The McGraw-Hill Companies1-8
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Individual’s Economizing Problem
6543210
02468
1012
DVDs$20
Books$10
12
10
8
6
4
2
02 4 6 8 10 12 14
$120 Budget
Income = $120
Pdvd = $20= 6
Income = $120
Pb = $10= 12
Attainable
Unattainable
Quantity of Books
Qu
anti
ty o
f D
VD
s
Copyright 2008 The McGraw-Hill Companies1-9
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Society’s Economizing Problem
• Scarce Resources• Resource Categories
–Land–Labor–Capital
• Investment–Entrepreneurial Ability
• Factors of Production
Copyright 2008 The McGraw-Hill Companies1-10
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Production Possibilities Model
• Full Employment• Fixed Resources• Fixed Technology• Two Goods
–Consumer Goods (Pizzas)
–Capital Goods (Industrial Robots)
Copyright 2008 The McGraw-Hill Companies1-11
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Production Possibilities Model
Production Possibilities Table
Type of Product
Pizzas (in hundred thousands)
Industrial Robots (in thousands)
Production Alternatives
A B C D E
10 9 7 4 0
0 1 2 3 4
Plot Points to Create Graph…
Copyright 2008 The McGraw-Hill Companies1-12
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Production Possibilities Model
Pizzas
Ind
ust
rial
Ro
bo
ts
Attainable
0 1 2 3 4 5 6 7 8 9
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
AB
C
D
E
EconomicGrowth
Now Attainable
A’
B’
C’
D’
E’
Production Possibilities Curve
G 1.1
Copyright 2008 The McGraw-Hill Companies1-13
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Production Possibilities Model
Pizzas
Ind
ust
rial
Ro
bo
ts
Attainable
0 1 2 3 4 5 6 7 8 9
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
AB
C
D
E
Law of IncreasingOpportunity Cost
A’
B’
C’
D’
E’
Production Possibilities Curve
Shape of the Curve
W 1.2
Copyright 2008 The McGraw-Hill Companies1-14
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Production Possibilities Model
Pizzas
Ind
ust
rial
Ro
bo
ts
Under or Unemployment
0 1 2 3 4 5 6 7 8 9
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
A’
B’
C’
D’
E’
Production Possibilities Curve
U
Copyright 2008 The McGraw-Hill Companies1-15
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Production Possibilities Model
15
10
5
0 1 2 3
a
b
c
d
e
MB = MC
MC
MB
Optimal Allocation of Resources
Quantity of Pizza
Mar
gin
al B
enef
it &
Mar
gin
al C
ost
Copyright 2008 The McGraw-Hill Companies1-16
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Unemployment Growth and the Future
• A Growing Economy
• Economic Growth–Increasing Resource
Supplies
–Increasing Resource Quality
–Technological Advances
Copyright 2008 The McGraw-Hill Companies1-17
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Present Choices & Future Possibilities
Goods for the Present
Goo
ds f
or t
he F
utur
e
Goo
ds f
or t
he F
utur
e
Goods for the PresentPresentville Futureville
P
F
CurrentCurve
CurrentCurve
FutureCurve
FutureCurve
Compare Two Hypothetical Economies
Implications of International Trade
G 1.2
Copyright 2008 The McGraw-Hill Companies1-18
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Pitfalls to Sound Economic Reasoning
• Biases
• Loaded Terminology
• Fallacy of Composition
• Post Hoc Fallacy
• Correlation but not Causation
Last
Word
Copyright 2008 The McGraw-Hill Companies1-19
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
Key Terms• economics• economic perspective• opportunity cost• utility• marginal analysis• scientific method• economic principle• other-things-equal as
sumption• macroeconomics• aggregate• microeconomics• positive economics• normative economics• economizing problem• budget line
• economic resources• land• labor• capital• investment• entrepreneurial ability• factors of production• consumer goods• capital goods• production possibilitie
s curve• law of increasing oppo
rtunity costs• economic growth
Copyright 2008 The McGraw-Hill Companies1-20
Chapter ObjectivesEconomic PerspectiveTheories Principles and ModelsMacro and MicroeconomicsIndividual’s Economizing ProblemSociety’s Economizing ProblemProduction Possibilities ModelUnemployment, Growth, and the FutureLast Word
Key Terms
End Show
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The Market System and the Circular Flow
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