Microeconomics Ch 1

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Ten principles of economics.

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  • Copyright © 2011 Nelson Education Limited
  • You might want to elaborate a bit on some of the points made here. Some examples: “ How do people decide how much to work?” Time is scarce resource – there’s just not enough time to do everything we’d like to do. How do we decide how much of our time to spend working? There’s a tradeoff: the more time we spend working, the higher our income, and therefore the more stuff we can buy. But, the more time we spend working, the less time we have for leisure – hanging out with friends, going hiking, watching movies, etc. (You might want to ask your students how THEY decide how much time to spend working. Some will say it depends on how many classes they are taking, or the time requirements of the available jobs. But probably at least a few will say the wage – the higher the wage, the more worthwhile to work.) “ How do firms decide what kind of labor to hire?” Firms can hire unskilled or skilled workers. The skilled workers are more productive, but cost more than the unskilled workers. “ How do firms decide how much to produce?” Ask your students, and see if any of them say “it depends on the price of the product they sell.” (Probably some will say “it depends on whether there’s a lot of demand for the product”. To which you might respond “and if there’s a lot of demand for the product, what does that mean for the price that firms can get for the product?”) Copyright © 2011 Nelson Education Limited
  • Copyright © 2011 Nelson Education Limited
  • Copyright © 2011 Nelson Education Limited
  • In this diagram, the green arrows represent flows of income/payments. The red arrows represent flows of goods & services (including services of the factors of production in the lower half of the diagram). To keep the graph simple, we have omitted the government, financial system, and foreign sector, as discussed on the next slide. You may wish to change the order in which the elements appear. To do so, look for “Custom Animation” in your version of PowerPoint. Copyright © 2011 Nelson Education Limited
  • “ Rich countries” refers to countries like the Canada, Japan, and Germany. “ Poor countries” refers to countries like India, Indonesia, and Nigeria. Copyright © 2011 Nelson Education Limited
  • Microeconomics Ch 1

    1. 1. Lecture PowerPoint® Slides to accompany Prepared by Marc Prud‘Homme, University of Ottawa 1
    2. 2. Chapter 1Ten Principles of Economics Copyright © 2011 Nelson Education Limited 2
    3. 3. What Economics Is All About Economics: the study of how society manages its scarce resources.  how people decide what to buy, how much to work, save, and spend  how firms decide how much to produce, how many workers to hire  how society decides how to divide its resources between national defence, consumer goods, protecting the environment, and other needs Copyright © 2011 Nelson Education Limited 3
    4. 4. The principles ofHOW PEOPLE MAKE DECISIONS Copyright © 2011 Nelson Education Limited 4
    5. 5. HOW PEOPLE MAKE DECISIONSPrinciple #1: People Face TradeoffsPrinciple #1: People Face TradeoffsPrinciple #2: The Cost of Something IsPrinciple #2: The Cost of Something IsWhat You Give Up to Get ItWhat You Give Up to Get ItPrinciple #3: Rational People Think at thePrinciple #3: Rational People Think at theMarginMarginPrinciple #4: People Respond to IncentivesPrinciple #4: People Respond to Incentives Copyright © 2011 Nelson Education Limited 5
    6. 6. ACTIVE LEARNING 1You are selling your 1996 Mustang. You have already spent$1000 on repairs.At the last minute, the transmission dies. You can pay $600to have it repaired, or sell the car “as is.”In each of the following scenarios, should you have thetransmission repaired? Explain. A. Blue book value is $6500 if transmission works, $5700 if it doesn’t B. Blue book value is $6000 if transmission works, $5500 if it doesn’t Copyright © 2011 Nelson Education Limited 6
    7. 7. HOW PEOPLE INTERACTPrinciple #5: Trade Can Make EveryonePrinciple #5: Trade Can Make EveryoneBetter OffBetter OffPrinciple #6: Markets Are Usually A GoodPrinciple #6: Markets Are Usually A GoodWay to Organize Economic ActivityWay to Organize Economic ActivityPrinciple #7: Governments Can SometimesPrinciple #7: Governments Can SometimesImprove Market OutcomesImprove Market Outcomes Copyright © 2011 Nelson Education Limited 7
    8. 8. FIGURE 1: The Circular-Flow DiagramRevenue Spending Markets for G&S Goods & G&S sold Services bought Firms Households Factors of Labour, land, production Markets for capital Factors ofWages, rent, Production Incomeprofit 8 Copyrig ht © 2011
    9. 9. HOW THE ECONOMY AS A WHOLE WORKSPrinciple #8: A country’s standard of livingPrinciple #8: A country’s standard of livingdepends on its ability to produce goods &depends on its ability to produce goods &services.services.Principle #9: Prices rise when thePrinciple #9: Prices rise when thegovernment prints too much money.government prints too much money.Principle #10: Society faces a short-runPrinciple #10: Society faces a short-runtradeoff between inflation andtradeoff between inflation andunemploymentunemployment Copyright © 2011 Nelson Education Limited 9
    10. 10. HOW THE ECONOMY AS A WHOLE WORKSPrinciple #8: A country’s standard of livingPrinciple #8: A country’s standard of livingdepends on its ability to produce goods &depends on its ability to produce goods &services.services.Principle #9: Prices rise when thePrinciple #9: Prices rise when thegovernment prints too much money.government prints too much money.Principle #10: Society faces a short-runPrinciple #10: Society faces a short-runtradeoff between inflation andtradeoff between inflation andunemploymentunemployment Copyright © 2011 Nelson Education Limited 9

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