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The Economic Way of Thinking
Dr. T. D. Mitchell
Bonneville High School,
Idaho Falls, Idaho
Scarcity: The Basic Economic Problem
•Principle 1 People Have Wants
•Principle 2 Scarcity Affects Everyone
• Goods
• Services
• Consumer
• Producer
Economics: Concepts and Choices, 2011. Holt McDougal
Scarcity: The Basic Economic Problem
•Scarcity Leads to Three Economic Questions
• What will be produced?
• How will it be produced?
• For whom it will be produced?
Economics: Concepts and Choices, 2011. Holt McDougal
The Factors of Production
Land Labor
Capital
Economics: Concepts and Choices, 2011. Holt McDougal
Entrepreneurship
Economic Choices: Opportunity Cost
Economics: Concepts and Choices, 2011. Holt McDougal
•Making Choices
• Incentives
• Utility
• Economize
•Factors that help you make an economic
choice:
1. Motivations for choice
2. No Free Lunch
Trade-Offs and Opportunity Cost
Economics: Concepts and Choices, 2011. Holt McDougal
•Making Trade-Offs
•Counting the Opportunity Costs
•Analyzing Choices
•Marginal Cost
•Marginal Benefits
Analyzing Production Possibilities
Economics: Concepts and Choices, 2011. Holt McDougal
•Economic Models
• Production Possibilities Curve (Frontier)
• Assumption
• Resources are fixed
• All resources are fully employed
• Technology is fixed
Review: Production Possibilities Curve
Economics: Concepts and Choices, 2011. Holt McDougal
What We Learn from PPCs
Economics: Concepts and Choices, 2011. Holt McDougal
•Efficiency
•Underutilization
•Law of increasing opportunities costs
•Beans and Bullets
Changing Production Possibilities
Economics: Concepts and Choices, 2011. Holt McDougal
0
1
2
3
4
5
6
7
0 2 4 6 8 10 12 14
Refrigerators
Cars
Production Possibilities Curve
Economists Toolbox
Economics: Concepts and Choices, 2011. Holt McDougal
• Statistics
• Using economic models
• Charts and tables
• Using Graphs
0
2
4
6
Category 1 Category 2 Category 3 Category 4
Chart Title
Series 1 Series 2 Series 3
0
2
4
6
Category 1 Category 2 Category 3 Category 4
Series 1 Series 2 Series 3
Economists Study
Economics: Concepts and Choices, 2011. Holt McDougal
Macroeconomics
The study of the whole economy
Microeconomics
The study of the individual
consumer
Units of Study Units of Study
 Economic Growth
 Economic Stability
 International Trade
 Consumer Markets
 Business Markets
 Labor Markets
Topics of interest Topics of Interest
 Money, Banking, finance
 Government Taxing and
Spending Policies
 Employment and
unemployment
 Inflation
 Markets, prices, costs, profits,
Competition, Government
Regulations
 Consumer Behavior
 Business Behavior
Positive and Normative Economics
Positive Economics
• A way of describing and
explaining economics as it is,
not as it should be.
• Involves verifiable facts, not
value judgments.
Normative Economics
• A way of describing and
explaining what economic
behavior ought to be, not
what it actually is.
• Does not involve value
judgments because it seeks
to make recommendations
for action.
Economics: Concepts and Choices, 2011. Holt McDougal
Adam Smith:
Founder of Modern Economics
 250 Years ago, economics
did not exist as an academic
discipline.
 In 1776, Adam Smith
changed all this.
 Born in Scotland, studied
literature, logic, and moral
philosophy.
 Wrote Wealth of Nations in
1776.
‐ Economic self-interest
‐ The invisible hand
‐ Became the foundation of
modern economics
Economics: Concepts and Choices, 2011. Holt McDougal

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Economic way of thinking: Economics - Concepts and Choices, 2011. Holt McDougal

  • 1. The Economic Way of Thinking Dr. T. D. Mitchell Bonneville High School, Idaho Falls, Idaho
  • 2. Scarcity: The Basic Economic Problem •Principle 1 People Have Wants •Principle 2 Scarcity Affects Everyone • Goods • Services • Consumer • Producer Economics: Concepts and Choices, 2011. Holt McDougal
  • 3. Scarcity: The Basic Economic Problem •Scarcity Leads to Three Economic Questions • What will be produced? • How will it be produced? • For whom it will be produced? Economics: Concepts and Choices, 2011. Holt McDougal
  • 4. The Factors of Production Land Labor Capital Economics: Concepts and Choices, 2011. Holt McDougal Entrepreneurship
  • 5. Economic Choices: Opportunity Cost Economics: Concepts and Choices, 2011. Holt McDougal •Making Choices • Incentives • Utility • Economize •Factors that help you make an economic choice: 1. Motivations for choice 2. No Free Lunch
  • 6. Trade-Offs and Opportunity Cost Economics: Concepts and Choices, 2011. Holt McDougal •Making Trade-Offs •Counting the Opportunity Costs •Analyzing Choices •Marginal Cost •Marginal Benefits
  • 7. Analyzing Production Possibilities Economics: Concepts and Choices, 2011. Holt McDougal •Economic Models • Production Possibilities Curve (Frontier) • Assumption • Resources are fixed • All resources are fully employed • Technology is fixed
  • 8. Review: Production Possibilities Curve Economics: Concepts and Choices, 2011. Holt McDougal
  • 9. What We Learn from PPCs Economics: Concepts and Choices, 2011. Holt McDougal •Efficiency •Underutilization •Law of increasing opportunities costs •Beans and Bullets
  • 10. Changing Production Possibilities Economics: Concepts and Choices, 2011. Holt McDougal 0 1 2 3 4 5 6 7 0 2 4 6 8 10 12 14 Refrigerators Cars Production Possibilities Curve
  • 11. Economists Toolbox Economics: Concepts and Choices, 2011. Holt McDougal • Statistics • Using economic models • Charts and tables • Using Graphs 0 2 4 6 Category 1 Category 2 Category 3 Category 4 Chart Title Series 1 Series 2 Series 3 0 2 4 6 Category 1 Category 2 Category 3 Category 4 Series 1 Series 2 Series 3
  • 12. Economists Study Economics: Concepts and Choices, 2011. Holt McDougal Macroeconomics The study of the whole economy Microeconomics The study of the individual consumer Units of Study Units of Study  Economic Growth  Economic Stability  International Trade  Consumer Markets  Business Markets  Labor Markets Topics of interest Topics of Interest  Money, Banking, finance  Government Taxing and Spending Policies  Employment and unemployment  Inflation  Markets, prices, costs, profits, Competition, Government Regulations  Consumer Behavior  Business Behavior
  • 13. Positive and Normative Economics Positive Economics • A way of describing and explaining economics as it is, not as it should be. • Involves verifiable facts, not value judgments. Normative Economics • A way of describing and explaining what economic behavior ought to be, not what it actually is. • Does not involve value judgments because it seeks to make recommendations for action. Economics: Concepts and Choices, 2011. Holt McDougal
  • 14. Adam Smith: Founder of Modern Economics  250 Years ago, economics did not exist as an academic discipline.  In 1776, Adam Smith changed all this.  Born in Scotland, studied literature, logic, and moral philosophy.  Wrote Wealth of Nations in 1776. ‐ Economic self-interest ‐ The invisible hand ‐ Became the foundation of modern economics Economics: Concepts and Choices, 2011. Holt McDougal