Your SlideShare is downloading. ×
0
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Lecture   2
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Lecture 2

455

Published on

Published in: Technology, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
455
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
20
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 7
  • 7
  • 7
  • 14
  • 15
  • 15
  • 21
  • 15
  • 13
  • 30
  • 31
  • 33
  • 35
  • 36
  • 7
  • 15
  • 15
  • 15
  • Transcript

    • 1. Thinking Like an Economist Chapter 2 Copyright © 2001 by Harcourt, Inc . All rights reserved.   Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College Publishers, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.
    • 2. Every field of study has its own terminology Mathematics Psychology Law axioms integrals vector spaces ego id cognitive dissonance torts venues Promissory estoppel
    • 3. Every field of study has its own terminology Economics Supply Demand Elasticity Consumer Surplus Comparative advantage Opportunity cost Deadweight loss
    • 4. Economics trains you to. . . . <ul><li>Think in terms of alternatives. </li></ul><ul><li>Evaluate the cost of individual and social choices. </li></ul><ul><li>Examine and understand how certain events and issues are related. </li></ul>
    • 5. The Economist as a Scientist <ul><li>The economic way of thinking . . . </li></ul><ul><li>Involves thinking analytically and objectively. </li></ul><ul><li>Makes use of the scientific method . </li></ul>
    • 6. The Scientific Method <ul><li>Uses abstract models to help explain how a complex, real world operates. </li></ul><ul><li>Develops theories, collects, and analyzes data to prove the theories. </li></ul>Observation, Theory and More Observation!
    • 7. The Role of Assumptions <ul><li>Economists make assumptions in order to make the world easier to understand. </li></ul><ul><li>The art in scientific thinking is deciding which assumptions to make. </li></ul><ul><li>Economists use different assumptions to answer different questions. </li></ul>
    • 8. The Economic Way of Thinking <ul><li>Includes developing abstract models from theories and the analysis of the models. </li></ul><ul><li>Uses two approaches: </li></ul><ul><li>Descriptive (reporting facts, etc.) </li></ul><ul><li>Analytical (abstract reasoning) </li></ul>
    • 9. Economic Models <ul><li>Economists use models to simplify reality in order to improve our understanding of the world </li></ul><ul><li>Two of the most basic economic models include: </li></ul><ul><ul><li>The Circular Flow Model </li></ul></ul><ul><ul><li>The Production Possibilities Frontier </li></ul></ul>
    • 10. The Circular-Flow Model The circular-flow model is a simple way to visually show the economic transactions that occur between households and firms in the economy.
    • 11. The Circular-Flow Diagram Firms Households Market for Factors of Production Market for Goods and Services Spending Revenue Wages, rent, and profit Income Goods & Services sold Goods & Services bought Labor, land, and capital Inputs for production
    • 12. The Circular-Flow Diagram <ul><li>Households </li></ul><ul><li>Buy and consume goods and services </li></ul><ul><li>Own and sell factors of production </li></ul><ul><li>Firms </li></ul><ul><li>Produce and sell goods and services </li></ul><ul><li>Hire and use factors of production </li></ul>
    • 13. The Circular-Flow Diagram <ul><li>Markets for Factors of Production </li></ul><ul><li>Households sell </li></ul><ul><li>Firms buy </li></ul><ul><li>Markets for Goods & Services </li></ul><ul><li>Firms sell </li></ul><ul><li>Households buy </li></ul>
    • 14. The Circular-Flow Diagram <ul><li>Factors of Production </li></ul><ul><li>Inputs used to produce goods and services </li></ul><ul><li>Land, labor, and capital </li></ul>
    • 15. The Production Possibilities Frontier The production possibilities frontier is a graph showing the various combinations of output that the economy can possibly produce given the available factors of production and technology.
    • 16. The Production Possibilities Frontier Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 0 2,000 700 1,000 300 A B 2,200 600 C D
    • 17. The Production Possibilities Frontier Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 2,000 2,200 A 700 600 300 0 1,000 B C D Production possibilities frontier
    • 18. Concepts Illustrated by the Production Possibilities Frontier <ul><li>Efficiency </li></ul><ul><li>Tradeoffs </li></ul><ul><li>Opportunity Cost </li></ul><ul><li>Economic Growth </li></ul>
    • 19. The Production Possibilities Frontier Quantity of Computers Produced Quantity of Cars Produced 3,000 2,000 A 700 0 1,000 An outward shift in the production possibilities frontier 4,000 E 2,100 750
    • 20. Microeconomics and Macroeconomics <ul><li>Microeconomics focuses on the individual parts of the economy. </li></ul><ul><ul><li>How households and firms make decisions and how they interact in specific markets </li></ul></ul><ul><li>Macroeconomics looks at the economy as a whole. </li></ul><ul><ul><li>How the markets, as a whole, interact at the national level. </li></ul></ul><ul><li> </li></ul>
    • 21. Two Roles of Economists <ul><li>When they are trying to explain the world, they are scientists. </li></ul><ul><li>When they are trying to change the world, they are policymakers. </li></ul>
    • 22. Positive versus Normative Analysis <ul><li>Positive statements are statements that describe the world as it is.  </li></ul><ul><ul><li>Called descriptive analysis </li></ul></ul><ul><li>Normative statements are statements about how the world should be. </li></ul><ul><ul><li>Called prescriptive analysis </li></ul></ul>
    • 23. Economists in Washington . . . <ul><li>. . . serve as advisers in the policymaking process of the three branches of government: </li></ul><ul><ul><li>Legislative </li></ul></ul><ul><ul><li>Executive </li></ul></ul><ul><ul><li>Judicial </li></ul></ul>
    • 24. Why Economists Disagree <ul><li>They may disagree on theories about how the world works. </li></ul><ul><li>They may hold different values and, thus, different normative views. </li></ul>
    • 25. Examples of What Most Economists Agree On <ul><li>A ceiling on rents reduces the quantity and quality of housing available. </li></ul><ul><li>Tariffs and import quotas usually reduce general economic welfare. </li></ul>
    • 26. Summary <ul><li>In order to address subjects with objectivity, economics makes use of the scientific method. </li></ul><ul><li>The field of economics is divided into two subfields: microeconomics and macroeconomics. </li></ul>
    • 27. Summary <ul><li>Economics relies on both positive and normative analysis. Positive statements assert how the world “is” while normative statements assert how the world “should be.” </li></ul><ul><li>Economists may offer conflicting advice due to differences in scientific judgments or to differences in values. </li></ul>
    • 28. Graphical Review
    • 29. The Circular-Flow Diagram Firms Households Market for Factors of Production Market for Goods and Services Spending Revenue Wages, rent, and profit Income Labor, land, and capital Inputs for production Goods & Services sold Goods & Services bought
    • 30. The Production Possibilities Frontier Quantity of Computers Produced Quantity of Cars Produced 3,000 0 1,000 2,000 700 1,000 300 A B 2,200 600 C D
    • 31. The Production Possibilities Frontier Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 2,000 2,200 A 700 600 300 0 1,000 B C D Production possibilities frontier
    • 32. The Production Possibilities Frontier 4,000 Quantity of Computers Produced Quantity of Cars Produced 3,000 2,000 A 700 0 1,000 E 2,100 750 An outward shift in the production possibilities frontier

    ×