lecture- economic problem LATEST

8/8/2019 lecture- economic problem LATEST

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The Problem.

How to organise Productionand Consumption of goods

and services?

Scarcity


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ecqecq4 10410 Choice

A consequence of scarcity

Compare

Costs Benefits

Rational choice maximizesbenefit relative to cost


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Microeconomic Problems

Choices

Rational economic decisionmaking

Opportunity cost


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Macroeconomic Problems

Growth

U

nemployment Inflation

International Trade - Balance of

Payments problems


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Workshop Activityecqecq1 101 10

Imagine that you won

millions of pesos on theLottery. Would your`economic problem' be

solved?


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Imagine that you won millions of pesoson the Lottery. Would your `economic

problem' be solved?

It would not be solved. Many things would still

be scarce. For example, you would still haveonly a finite amount of time to enjoy what themoney could buy: there are only 24 hours ina day, and we do not live for ever.


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You should weigh up whether the extra pay(benefit) from the better paid job is worththe extra hardship (cost) involved in doing it..

Assume that you are looking for a job andare offered two. One is unpleasant to dobut pays more. How would you make a

RATIONAL choice between the two?


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Opportunity Cost

The cost of any activity measured

in terms of the best alternativeforgone


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ecqecq4 10410 Illustrating choice &

opportunity cost

The Production

Possibility Curve

0

Rice

Peas


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opportunity cost

Rice

Peas0

Productionpossible

y

x

not allresources

used


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opportunity cost

0x

Productionboundary

y1

x

All resourcesare used

Rice

Peas


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opportunity cost

0

Possiblechoices

y1

y2

x2

x1

Rice

Peas


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Economic reasoning

Economicmethodologyconstructs

theories ormodels

Compare withnatural sciences

(physics)

Used toexplain or

predict

Problems of aSocial Science

Controlled

experiments notpossible

Human behaviorunpredictable


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ecqecq4 10410 Statements about the

economy

Statement offact

Statement of whatis desirable, oughtto be or what is

good or bad

Positive Normative

either

Statement offactMay be tested

Statement offactMay be tested

The statementmay be true orfalse

Statement of whatis desirable, oughtto be or what is

good or badNot testable


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Is the statement below Positive, orNormative or could it be either?

It is wrong that inflation should bereduced if this means that there willbe higher unemployment. .

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Current Government policies

should reduce unemployment .

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Cutting the higher rate of incometax will redistribute incomes fromthe poor to the rich.

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Summary

Finiteresources

Scarcity

Choices

OpportunityCost

Subjective -

difficult to value

Costs

Benefits

compare

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lecture- economic problem LATEST