Chapter 1  Econ.  I’m  taking  a course  that  has  the h ighest  failure rate at college.  Uncle Sam wants you to do bett...
Economizing Problem Dealing with   “ Scarcity ”
T he  H ot  M ajor  F or  U ndergrads  I s   E conomics   WSJ – 2005 <ul><li>Universities  awarded  16,141  economics   de...
MICROECONOMICS ... “ Beautiful forest!. “ Beautiful leaf!” MACROECONOMICS ...
. <ul><li>Macro   [national]  economics – concerned  </li></ul><ul><li>with the  economy as a whole  Macro  </li></ul><ul>...
.   Production Microeconomics Macroeconomics How much steel Total industrial output How much office space Gross Domestic P...
I s the  f ollowing  Micro   or   Macro ? 1. The price  of  digital cameras increased 5%  last  year. 2. Unemployment was ...
BUT LIMITED  OR  SCARCE RESOURCES! SOCIETY HAS VIRTUALLY   UNLIMITED  WANTS ... THE FOUNDATION OF ECONOMICS
Scarcity  – Wants > Availability  of Resources
ECONOMICS  -  “Science of scarcity” - the  study  of the   choices   people make  in an  effort to satisfy their  unlimite...
Food ,  clothing ,  shelter , Chrysler 300, mansion, Nintendo DS, jewelry, iPod, projector, digital camera, good health, c...
THE FOUNDATION OF ECONOMICS SOCIETY HAS VIRTUALLY   UNLIMITED WANTS...
GOODS & SERVICES PROVIDE... UTILITY   [ satisfaction ]
LUXURIES GOODS & SERVICES PROVIDE... UTILITY [ satisfaction ]
. NECESSITIES Food Clothing Shelter Luxuries V.
Economic Way of Thinking Do the Benefits outweigh the cost? Scales of Economics Expected marginal benefits Expected margin...
Trade-Offs vs.  Opportunity Costs What's the difference?
Trade-Offs … are all the alternatives in making a decision Opportunity Cost … the cost of the next best use of money, time...
. S carcity Choices Opportunity Costs 1 st  Choice  (and a good one) The  Opportunity Cost  is the  Opportunity Lost [“wha...
Trade-offs – decision ( choice ) to get more of   one  thing  means  to  accept  less of  another. Opportunity Cost  –  2 ...
Trade-offs …  Are all of the alternatives that go into making a decision….  In this case let’s say you have many different...
Here are all of your Choices on Saturday night…which are… <ul><li>Go on a Date </li></ul><ul><li>Hang out with friends </l...
<ul><li>Remember… Opportunity Cost is the next highest valued alternative. (The 2 nd  Best Choice) </li></ul>
As you recall, these are the choices on Saturday night <ul><li>Go on a Date </li></ul><ul><li>Hang out with friends </li><...
The ranking’s are… <ul><li>Go on a Date </li></ul><ul><li>Hang out with his friends </li></ul><ul><li>Watch TV </li></ul><...
What is the opportunity cost of  going on the date?
Look again at the definition of Opportunity Cost <ul><li>……  the cost of the next best use of money, time, or resources </...
<ul><li>The opportunity cost was giving up the reading of a good book, the 2 nd  Choice </li></ul><ul><li>Also, you must c...
<ul><li>Remembering  Opportunity Cost  when making a decision is the start of your new way of thinking, the  Economic Way ...
RESOURCE  PAYMENTS RENTAL  INCOME INTEREST  INCOME WAGES PROFIT & LOSS Property Resources LAND CAPITAL HUMAN RESOURCES LAB...
When It comes to Smoking, Don’t Let Your Peers  Knock  You  Down  To  Their  Level
Bring Your Peers Up To Your Level “ Don’t smoke, don’t Smoke.”
Review <ul><li>What is the fundamental economic problem?  </li></ul><ul><li>What does TANSTAAFL mean?  </li></ul><ul><li>E...
. <ul><li>S carcity   is  represented  by the  frontier line. </li></ul><ul><li>2.   Choices   -  represented by pts A, B....
And How Is  Economic Growth  Demonstrated  on a  Graph? Like This Economic Growth A B C D a b Capital Goods Consumer Goods...
PRODUCTION POSSIBILITIES Assumes... Efficiency Fixed Resources Fixed Technology Two Products for example... A Capital Good...
Using all of our resources, to  get some pizza, we must give up some robot arms! for example... What if we could only prod...
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form PRODUCTION POSSIBILITIES
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pi...
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pi...
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pi...
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pi...
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pi...
PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pi...
At  any  one  point  in  time,  a  full-employment,  full-production economy must sacrifice some of product  to  obtain   ...
Q Q Robots   (thousands) Pizzas   (hundred thousands ) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1  2  3  4  5  6  7  8 A B C D E W...
Q Q Robots  (thousands) Pizzas  (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1  2  3  4  5  6  7  8 A B C D E W At...
Q Q Robots  (thousands) Pizzas  (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1  2  3  4  5  6  7  8 A B C D E W At...
U U nemployment & U nderemployment  Shown by Point  U More of either or both is possible PRODUCTION POSSIBILITIES Q Q Robo...
PRODUCTION POSSIBILITIES The  ability  to  produce a  larger total output - a rightward  shift  of  the production possibi...
More of either or both is possible PRODUCTION POSSIBILITIES 1. Increase in resources - 2. Better resource quality - 3. Tec...
Economic Growth Q Q Robots   (thousands) Radios   (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1  2  3  4  5  6  7...
Two Examples of Economic Growth FAVORING PRESENT GOODS Goods for the Present Goods for the Future CURRENT CURVE CONSUMPTIO...
Two Examples of Economic Growth FAVORING PRESENT GOODS FAVORING FUTURE GOODS Goods for the Present Goods for the Future CU...
Going to War (U.S.)   When  the  U.S.  entered  WWI, we had  severe   unemployment .  We were able to step up production o...
40. At what letter is there  unemployment  [ recession ]? 41. What letters represent resources being used in their most pr...
PPC  Practice Questions <ul><li>1. An economy that is  fully employing  all its productive  </li></ul><ul><li>resources bu...
PPC   P ractice   Q uestions   [continued] 5. Which of the following would cause the  PPC shown (right) to shift outward? ...
. 1.  Land  [ natural resources ] – [ “gifts of nature ”] The  Four   Factors  of  Production “ Gifts  of  Nature ” Water ...
. 2.  Labor  [ human resources ]  anyone who works [ “paid work” ] A.  Physical  – pro athletes & lumberjacks B.   Intelle...
. 3.  Capital  Resources  –  all  “man-made inputs”  used to produce consumer products  (machinery, physical plants, & too...
. 4.  Entrepreneurship  –  Combines land, labor, & capital to    produce products . Resource payments . The resource owner...
. Real  Capital   v.   Financial   Capital INVESTMENT FINANCIAL  CAPITAL [stocks, bonds, & money] REAL  CAPITAL [tools, ma...
The  Harley Hog  Circular Flow Product  Market Resource  Market
Hog  CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS PRODUCT MARKET Mechanic RESOURCE MARKET 1 2 3 4 Flow 4. Goods/services Flow...
Hog  CIRCULAR FLOW  MODEL BUSINESSES HOUSEHOLDS PRODUCT MARKET Mechanic RESOURCE MARKET 1 2 3 4 Flow 4. Goods/services Flo...
CIRCULAR FLOW  MODEL BUSINESSES HOUSEHOLDS PRODUCT MARKET Householders demand hogs & will pay Mechanic RESOURCE MARKET Bus...
BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $  REVENU E Resource ...
BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $  REVENU E Resource ...
BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $  REVENU E Resource ...
HOUSEHOLDS $  COSTS $  INCOMES GOODS & SERVICES GOODS & SERVICES PRODUCT  MARKET Resource  Market  BUSINESSES Give me  you...
HOUSEHOLDS $  COSTS $  INCOMES GOODS & SERVICES GOODS & SERVICES PRODUCT  MARKET Resource  Market  BUSINESSES CIRCULAR FLO...
BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES ...
The Circular-Flow Diagram Businesses Product Market Resource Market Households 1 2 3 4 Labor What flow are the following? ...
The Circular-Flow Diagram Households Product Market Resource Market 2 3 4 <ul><li>What flow are the following? </li></ul><...
NS  56-59 56. In the  product market  (householders/businesses) are the demanders  and (householders/businesses) are the  ...
And finally – the real opportunity cost of a bad education is that you have to drive a Communist Car .  Which would begin ...
The  Yugo  on the inside or under the hood Anytime you filled the   Yugo  with gas,  you doubled its value.  Putting seats...
The End
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  • Chapter One Powerpoint

    1. 1. Chapter 1 Econ. I’m taking a course that has the h ighest failure rate at college. Uncle Sam wants you to do better in economics. What is Economics?
    2. 2. Economizing Problem Dealing with “ Scarcity ”
    3. 3. T he H ot M ajor F or U ndergrads I s E conomics WSJ – 2005 <ul><li>Universities awarded 16,141 economics degrees last year at 272 colleges & universities which is up 40% in five years . </li></ul><ul><li>There has been a clear explosion of economics as a major , particularly at the top colleges. </li></ul><ul><li>At New York University , the econ major has doubled in 10 years . At 800 , it is now the most popular major. Economics is also the number one major at Harvard (964 students ) , Columbia (up 67 % in 5 yr . ) , Stanford , Penn , Princeton , Chicago (24% of graduating class) , and 2 nd at Brown , Yale , and University of California at Berkeley . </li></ul><ul><li>The increase in the numbers is the result of many students seeing economics as the best vehicle promising good pay and security . </li></ul><ul><li>Students realize that understanding economics has become a fundamental necessity of life . Economics rising popularity is even global . Econ majors in Poland have doubled in 6 years. In Russia , econ majors have jumped from 18% of students to 31% . Also, the chairman of the economics department at London School of Economics says econ’s popularity is at an all time high . </li></ul>“ Econ, Econ , I want to major in Econ.”
    4. 4. MICROECONOMICS ... “ Beautiful forest!. “ Beautiful leaf!” MACROECONOMICS ...
    5. 5. . <ul><li>Macro [national] economics – concerned </li></ul><ul><li>with the economy as a whole Macro </li></ul><ul><li>examines the “forest, not the trees, </li></ul><ul><li>leaves, or specific pieces of bark.” </li></ul>2. Micro [details of the big picture] – concerned with specific economic units or individual markets under a microscope. Emphasis is on individual households, industries, or firms [like the # of workers employed by Ford] [Concerns the components of the economy] Micro examines the “trees, leaves, & pieces of bark, rather than the forest.” Great Forest! Nice bark!
    6. 6. . Production Microeconomics Macroeconomics How much steel Total industrial output How much office space Gross Domestic P roduct Prices Price of individual goods Price of medical care Rate of inflation Employment Jobs in the steel industry Total number of jobs Economy’s unemployment “ Check out those pieces of bark!. “ Beautiful, beautiful forest!” Macro [ large ]( telescope ) “whole economy” [economy-wide issues] Micro [ small ]( microscope ] “segment of the economy” [issues in the economy]
    7. 7. I s the f ollowing Micro or Macro ? 1. The price of digital cameras increased 5% last year. 2. Unemployment was 5.4% for the U.S. workforce. 3. Unemployment in the auto industry was 8% last year. 4. Duck N ational Bank lowered its interest rates on CDs to 8%. 5. The Inflation rate rose to 2.7% last year. 6. The computer industry laid off 8% of its workers last year. 7. The price of gasoline rose 25% last year. “ What forest, check these branches, limbs, and leaves.”
    8. 8. BUT LIMITED OR SCARCE RESOURCES! SOCIETY HAS VIRTUALLY UNLIMITED WANTS ... THE FOUNDATION OF ECONOMICS
    9. 9. Scarcity – Wants > Availability of Resources
    10. 10. ECONOMICS - “Science of scarcity” - the study of the choices people make in an effort to satisfy their unlimited needs and wants from limited resources . Economics is the academic discipline most discussed by the general public. It is also one of the least understood . [“Language of graphs”] Scarcity Choices Opportunity Cost
    11. 11. Food , clothing , shelter , Chrysler 300, mansion, Nintendo DS, jewelry, iPod, projector, digital camera, good health, children, camcorder, laptop warmth, indoor plumbing, rollerblades, a sense of personal worth, Plasma TV, literacy, high economics grade, cell phone, compact discs, money “ Need” those first three to survive. Unlimited Human Wants Limited Resources Scarcity Problem Land , L abor, C apital , E ntrepreneur R ent, W ages, I nterest, P rofits
    12. 12. THE FOUNDATION OF ECONOMICS SOCIETY HAS VIRTUALLY UNLIMITED WANTS...
    13. 13. GOODS & SERVICES PROVIDE... UTILITY [ satisfaction ]
    14. 14. LUXURIES GOODS & SERVICES PROVIDE... UTILITY [ satisfaction ]
    15. 15. . NECESSITIES Food Clothing Shelter Luxuries V.
    16. 16. Economic Way of Thinking Do the Benefits outweigh the cost? Scales of Economics Expected marginal benefits Expected marginal costs Choices are primarily marginal – not all or nothing.
    17. 17. Trade-Offs vs. Opportunity Costs What's the difference?
    18. 18. Trade-Offs … are all the alternatives in making a decision Opportunity Cost … the cost of the next best use of money, time, or resources (you’re 2 nd Choice)
    19. 19. . S carcity Choices Opportunity Costs 1 st Choice (and a good one) The Opportunity Cost is the Opportunity Lost [“what is possible for $10,000 ”] Opportunity Cost 2 nd Choice
    20. 20. Trade-offs – decision ( choice ) to get more of one thing means to accept less of another. Opportunity Cost – 2 nd Choice Charlie O’Connell Sarah B Krisily “ I’m in love with both, but can have only one .” The Bachelor
    21. 21. Trade-offs … Are all of the alternatives that go into making a decision…. In this case let’s say you have many different choices of what you want to do on Saturday night.
    22. 22. Here are all of your Choices on Saturday night…which are… <ul><li>Go on a Date </li></ul><ul><li>Hang out with friends </li></ul><ul><li>Watch TV </li></ul><ul><li>Read a good book </li></ul><ul><li>Hang out with parents </li></ul><ul><li>Go to bed early </li></ul>Opportunity Cost is different, though… These are all of your trade-offs
    23. 23. <ul><li>Remember… Opportunity Cost is the next highest valued alternative. (The 2 nd Best Choice) </li></ul>
    24. 24. As you recall, these are the choices on Saturday night <ul><li>Go on a Date </li></ul><ul><li>Hang out with friends </li></ul><ul><li>Watch TV </li></ul><ul><li>Read a good book </li></ul><ul><li>Hang out with parents </li></ul><ul><li>Go to bed early </li></ul>You choose the one that will give the most satisfaction for the price that has to be paid
    25. 25. The ranking’s are… <ul><li>Go on a Date </li></ul><ul><li>Hang out with his friends </li></ul><ul><li>Watch TV </li></ul><ul><li>Read a good book </li></ul><ul><li>Hang out with parents </li></ul><ul><li>Go to bed early </li></ul>1 2 3 4 5 6 Obviously you do not go through this much thought when making a decision…
    26. 26. What is the opportunity cost of going on the date?
    27. 27. Look again at the definition of Opportunity Cost <ul><li>…… the cost of the next best use of money, time, or resources </li></ul>
    28. 28. <ul><li>The opportunity cost was giving up the reading of a good book, the 2 nd Choice </li></ul><ul><li>Also, you must consider the financial cost of the date, how else you could have spent the money. </li></ul>
    29. 29. <ul><li>Remembering Opportunity Cost when making a decision is the start of your new way of thinking, the Economic Way of Thinking . </li></ul>
    30. 30. RESOURCE PAYMENTS RENTAL INCOME INTEREST INCOME WAGES PROFIT & LOSS Property Resources LAND CAPITAL HUMAN RESOURCES LABOR ENTREPRENEUR
    31. 31. When It comes to Smoking, Don’t Let Your Peers Knock You Down To Their Level
    32. 32. Bring Your Peers Up To Your Level “ Don’t smoke, don’t Smoke.”
    33. 33. Review <ul><li>What is the fundamental economic problem? </li></ul><ul><li>What does TANSTAAFL mean? </li></ul><ul><li>Every choice has a __?__. </li></ul><ul><li>Your next best use of time, $, resources? </li></ul><ul><li>Why did the chicken cross the road? </li></ul><ul><li>What are the 4 Factors of production, with examples please? </li></ul><ul><li>How does economics help people make better decisions? </li></ul>
    34. 34. . <ul><li>S carcity is represented by the frontier line. </li></ul><ul><li>2. Choices - represented by pts A, B. or C. </li></ul>3. Opportunity Cost is illustrated in terms of moving from one point to another when resources are utilized to their full potential. [must make choices] 4. Efficiency - producing maximum output with available resources and technology. 5. Economic growth 5 PPC Concepts
    35. 35. And How Is Economic Growth Demonstrated on a Graph? Like This Economic Growth A B C D a b Capital Goods Consumer Goods 0 [Ability to produce a larger total output over time]
    36. 36. PRODUCTION POSSIBILITIES Assumes... Efficiency Fixed Resources Fixed Technology Two Products for example... A Capital Good A Consumer Good
    37. 37. Using all of our resources, to get some pizza, we must give up some robot arms! for example... What if we could only produce ... 10,000 Robot Arms or 400,000 Pizzas PRODUCTION POSSIBILITIES
    38. 38. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form PRODUCTION POSSIBILITIES
    39. 39. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    40. 40. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    41. 41. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    42. 42. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    43. 43. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    44. 44. PIZZA 0 1 2 3 4 (in hundred thousands) Robots 10 9 7 4 0 (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    45. 45. At any one point in time, a full-employment, full-production economy must sacrifice some of product to obtain more of product . PRODUCTION POSSIBILITIES Limited Resources means a limited output...
    46. 46. Q Q Robots (thousands) Pizzas (hundred thousands ) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable A ttainable & E fficient PRODUCTION POSSIBILITIES
    47. 47. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES Notes... LAW OF INCREASING OPPORTUNITY COSTS
    48. 48. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES Notes... LAW OF INCREASING OPPORTUNITY COSTS Economic resources are not completely adapt- able to other uses. It will be a CONCAVE curve
    49. 49. U U nemployment & U nderemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8
    50. 50. PRODUCTION POSSIBILITIES The ability to produce a larger total output - a rightward shift of the production possibilities curve caused by... Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 Notes... Economic Growth
    51. 51. More of either or both is possible PRODUCTION POSSIBILITIES 1. Increase in resources - 2. Better resource quality - 3. Technological advances - Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 Notes... Economic Growth
    52. 52. Economic Growth Q Q Robots (thousands) Radios (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A’ B’ C’ D’ E’ PRODUCTION POSSIBILITIES
    53. 53. Two Examples of Economic Growth FAVORING PRESENT GOODS Goods for the Present Goods for the Future CURRENT CURVE CONSUMPTION PRODUCTION POSSIBILITIES
    54. 54. Two Examples of Economic Growth FAVORING PRESENT GOODS FAVORING FUTURE GOODS Goods for the Present Goods for the Future CURRENT CURVE FUTURE CURVE CONSUMPTION Goods for the Present Goods for the Future FUTURE CURVE CONSUMPTION CURRENT CURVE PRODUCTION POSSIBILITIES
    55. 55. Going to War (U.S.) When the U.S. entered WWI, we had severe unemployment . We were able to step up production of consumer goods and war materials simply by getting to full production . We went from 14.6% unemployment in 1940 to 1.2% in 1944 . Over 7 million people went to work that were not working in 1940 . Going to War(Russia) . Russia , on the other hand, entered WWII at full capacity . So their preparedness entailed a shifting of resources from civilian goods and a drop in their standard of living. The U.S. position was similar as we entered the Viet Nam War at full employment . We increased both military spending and domestic spending on the “War on Poverty.” Our attempt to achieve more “guns and butter” in a FE economy was doomed . We were trying to spend beyond capacity and ended up with double digit inflation in the 1970s . Civilian Goods F C United States [Beginning of WWII] War Goods Civilian Goods War Goods D C Russia [Beginning of WWII]
    56. 56. 40. At what letter is there unemployment [ recession ]? 41. What letters represent resources being used in their most productive manner ? [full employment, full production, and best available technology] 42. What letter represents an improvement in technology , therefore a new PPC frontier line? 43. The (straight line/curve) illustrates the “line of increasing cost” ? 44. The (straight line/curve) illustrates the “law of constant cost.” 45. At what letter would there be the most economic growth in the future if a country were producing there now? 46. What is the opportunity cost when moving from “C” to “D” ; E to B ; & do we have to give anything up when moving from F to D ? F A,B,C,D,E G A Capital Consumer no A B C G D E C A P I T A L G O O D S Consumer Goods F PPC
    57. 57. PPC Practice Questions <ul><li>1. An economy that is fully employing all its productive </li></ul><ul><li>resources but allocating less to investment than </li></ul><ul><li>to consumption will be at which of the following </li></ul><ul><li>positions on the PPC to the right? </li></ul><ul><li>a. A b. B c. C d. D e. E </li></ul><ul><li>2. Which of the following best explains the shape of the </li></ul><ul><li>PPC for the two-commodity economy shown above? </li></ul><ul><li>a. Opportunity cost of producing another unit of each stays the same . </li></ul><ul><li>b. Opportunity cost of producing another unit of each decreases . </li></ul><ul><li>c. Opportunity cost of producing another unit of each increases . </li></ul><ul><li>3. Which of the following is true of the PPC on the right? </li></ul><ul><li>a. Point Q is attainable but undesirable. </li></ul><ul><li>b. Point R is unattainable but undesirable. </li></ul><ul><li>c. A technological improvement of watches would move </li></ul><ul><li>the economy from T to P. </li></ul><ul><li>d The opportunity cost of moving from S to T is the # of </li></ul><ul><li>watches given up. </li></ul><ul><li>4. If we move from B to C on the graph (right), </li></ul><ul><li>the opportunity cost is? </li></ul><ul><li>a. AH units of good Y </li></ul><ul><li>b. OG units of good Y </li></ul><ul><li>c. EF units of good X </li></ul><ul><li>d. HG units of good Y </li></ul>B C A H G O
    58. 58. PPC P ractice Q uestions [continued] 5. Which of the following would cause the PPC shown (right) to shift outward? a. Reopening steel plants that had been closed b. Rehiring laid-off workers c. Using machinery for missile production instead of steel production d. Using machinery for steel production instead of missile production e. Developing a more efficient steelmaking process 6. Base on the graph (right), which statements are true? I. The opportunity cost of moving from P to R is 10 units of Y. II. The opportunity cost of moving from R to P is 8 units of X. III. The opportunity cost of moving from Q to R is 0 units. a. I only b. III only c. I & II only d. I, II, & III Steel Missiles X
    59. 59. . 1. Land [ natural resources ] – [ “gifts of nature ”] The Four Factors of Production “ Gifts of Nature ” Water Wind Sun Fossil fuels
    60. 60. . 2. Labor [ human resources ] anyone who works [ “paid work” ] A. Physical – pro athletes & lumberjacks B. Intellectual – accountants & lawyers “ Hired Help ”
    61. 61. . 3. Capital Resources – all “man-made inputs” used to produce consumer products (machinery, physical plants, & tools) . A. Capital goods – goods [machinery, buildings, & tools] used to produce other goods . [crane, Ford plant, hammer]
    62. 62. . 4. Entrepreneurship – Combines land, labor, & capital to produce products . Resource payments . The resource owners receive rent [for the use of their land; wages [for their labor]; interest [payment for financial capital], and profits [for their entrepreneurial ability]. Rent Wages Interest Profits Land Labor Capital Entrepreneur
    63. 63. . Real Capital v. Financial Capital INVESTMENT FINANCIAL CAPITAL [stocks, bonds, & money] REAL CAPITAL [tools, machinery, & factories] Can produce something directly with these Can’t produce anything directly with these Notes...
    64. 64. The Harley Hog Circular Flow Product Market Resource Market
    65. 65. Hog CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS PRODUCT MARKET Mechanic RESOURCE MARKET 1 2 3 4 Flow 4. Goods/services Flow 3: C onsumer expenditures
    66. 66. Hog CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS PRODUCT MARKET Mechanic RESOURCE MARKET 1 2 3 4 Flow 4. Goods/services Flow 3: C onsumer expenditures Flow 1: L and, L abor, C apital, E ntrepreneur Flow 2: R ent, Wages, Interest, Profits
    67. 67. CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS PRODUCT MARKET Householders demand hogs & will pay Mechanic RESOURCE MARKET Businesses supply hogs g/s I demand that hog & will pay.
    68. 68. BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENU E Resource Market Mechanic Businesses Show me the money! & you’ll get this hog. CIRCULAR FLOW MODEL Householders
    69. 69. BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENU E Resource Market Mechanic Householders Businesses I demanded this hog and had to pay for it. Show me the money! & you’ll get this hog. CIRCULAR FLOW MODEL
    70. 70. BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENU E Resource Market Mechanic Householders HH supply hog labor H.D. demands hog labor & will pay Businesses Show me the money! & you’ll get this hog. I demanded this hog and had to pay for it. CIRCULAR FLOW MODEL
    71. 71. HOUSEHOLDS $ COSTS $ INCOMES GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET Resource Market BUSINESSES Give me your hog labor & I’ll show you the money. CIRCULAR FLOW MODEL
    72. 72. HOUSEHOLDS $ COSTS $ INCOMES GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET Resource Market BUSINESSES CIRCULAR FLOW MODEL I supplied hog labor & was paid..
    73. 73. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE CIRCULAR FLOW MODEL
    74. 74. The Circular-Flow Diagram Businesses Product Market Resource Market Households 1 2 3 4 Labor What flow are the following? A. Consumer expenditures? B. Goods and services? C. Land, labor, capital, and entrepreneurs? D. Rent, wages, interest, and profits? 2 1 4 3
    75. 75. The Circular-Flow Diagram Households Product Market Resource Market 2 3 4 <ul><li>What flow are the following? </li></ul><ul><li>A. Goods/services? </li></ul><ul><li>B. Consumer expenditures? </li></ul><ul><li>C. Land, labor, capital and </li></ul><ul><li>entrepreneurial ability? </li></ul><ul><li>Rent, wages, interest, </li></ul><ul><li>and profits? </li></ul>Businesses 1 4 3 1 2
    76. 76. NS 56-59 56. In the product market (householders/businesses) are the demanders and (householders/businesses) are the suppliers . 57. In the resource market (householders/businesses) are the demanders and (householders/businesses) are the suppliers . 58. In the resource market , (householders/businesses) sell resources to (householders/businesses). 59. In the product market , (householders/businesses) sell products [goods/services] to (householders/businesses). Fuzzy Wuzzy
    77. 77. And finally – the real opportunity cost of a bad education is that you have to drive a Communist Car . Which would begin to rust while still in the show room, Would shake when it hit 35 mph, Would break in half going over RR tracks, And would never be stolen even if you left the keys in it with the motor running. YUGO Only way to get up a hill
    78. 78. The Yugo on the inside or under the hood Anytime you filled the Yugo with gas, you doubled its value. Putting seats in tripled its value.]
    79. 79. The End

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