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Chap02rev
 

Chap02rev

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    Chap02rev Chap02rev Presentation Transcript

    • The Economizing Problem 2 C H A P T E R
    • THE FOUNDATION OF ECONOMICS SOCIETY HAS VIRTUALLY UNLIMITED WANTS...
    • BUT LIMITED OR SCARCE PRODUCTIVE RESOURCES! SOCIETY HAS VIRTUALLY UNLIMITED WANTS... THE FOUNDATION OF ECONOMICS
    • GOODS & SERVICES PROVIDE... UTILITY
    • LUXURIES GOODS & SERVICES PROVIDE... UTILITY
    • LUXURIES vs. NECESSITIES GOODS & SERVICES PROVIDE... UTILITY
    • PROPERTY RESOURCES LAND SCARCE RESOURCES ECONOMIC RESOURCES
    • PROPERTY RESOURCES LAND CAPITAL SCARCE RESOURCES ECONOMIC RESOURCES
    • PROPERTY RESOURCES LAND CAPITAL SCARCE RESOURCES ECONOMIC RESOURCES INVESTMENT FINANCIAL CAPITAL REAL CAPITAL Notes...
    • PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES SCARCE RESOURCES ECONOMIC RESOURCES
    • PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR SCARCE RESOURCES ECONOMIC RESOURCES
    • PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR ENTREPRENEURIAL ABILITY SCARCE RESOURCES ECONOMIC RESOURCES Also known as the Input Factors of Production
    • ENTREPRENEURIAL ABILITY Takes The Initiative Makes Strategic Business Decisions Innovator The Risk Bearer
    • RESOURCE PAYMENTS RENTAL INCOME INTEREST INCOME WAGES PROFIT & LOSS PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR ENTREPRENEUR
    • Productive Efficiency Full Employment Full Production Allocative Efficiency ECONOMICS & EFFICIENCY
    • PRODUCTION POSSIBILITIES Assumes... Full Employment and Productive Efficiency Fixed Resources Fixed Technology Two Goods for example...
    • PRODUCTION POSSIBILITIES Assumes... Full Employment and Productive Efficiency Fixed Resources Fixed Technology Two Goods for example... A Consumer Good PIZZA
    • Two Goods Fixed Resources Fixed Technology Assumes... Full Employment and Productive Efficiency PRODUCTION POSSIBILITIES for example... A Capital Good Robots
    • Using all of our resources, to get some pizza, we must give up some robots! for example... What if we could only produce ... 10,000 Robots or 400,000 Pizzas PRODUCTION POSSIBILITIES
    • 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) Pizzas (hundred thousands) 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) Pizzas (hundred thousands) 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) Pizzas (hundred thousands) 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) Pizzas (hundred thousands) 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) Pizzas (hundred thousands) 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) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES
    • At any point in time, a full-employment, full-production economy must sacrifice some of product X to obtain more of product Y . PRODUCTION POSSIBILITIES Limited Resources means a limited output...
    • 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
    • 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... The amount of other products that must be forgone or sacrificed to obtain 1 unit of a specific product is called the opportunity cost of that good. LAW OF INCREASING OPPORTUNITY COSTS
    • 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 A graph of the production possibilities curve will be CONCAVE - bowed out from the origin. Economic resources are not completely adapt- able to other uses.
    • PRODUCTION POSSIBILITIES MC MB Allocative Efficiency: MB=MC MB=MC P Q Marginal Benefit & Cost Quantity of Pizzas $15 10 5 1 2 3
    • U Unemployment & Underemployment 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
    • U Unemployment & Underemployment 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 Notes... Economic Growth The ability to produce a larger total output - a rightward shift of the production possibilities curve caused by...
    • U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES 1 – Increase in resource supplies 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
    • Economic Growth 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’ PRODUCTION POSSIBILITIES
    • Two Examples of Economic Growth ALTA - FAVORS PRESENT GOODS Goods for the Present Goods for the Future CURRENT CURVE FUTURE CURVE CONSUMPTION PRODUCTION POSSIBILITIES Alta
    • Two Examples of Economic Growth ALTA - FAVORS PRESENT GOODS ZORN - FAVORS 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 Alta Zorn
    • Applications...
      • Unemployment and Productive Inefficiency
      PRODUCTION POSSIBILITIES
    • Applications...
      • Unemployment and Productive Inefficiency
      • Tradeoffs and Opportunity Costs
      PRODUCTION POSSIBILITIES
    • Applications...
      • Unemployment and Productive Inefficiency
      • Tradeoffs and Opportunity Costs
      • Shifts in the Production Possibilities Curves
      PRODUCTION POSSIBILITIES
    • ECONOMIC SYSTEMS
      • THE MARKET SYSTEM
        • Pure Capitalism
        • Laissez-faire
    • ECONOMIC SYSTEMS
      • THE MARKET SYSTEM
        • Pure Capitalism
        • Laissez-faire
      • THE COMMAND SYSTEM
        • Socialism
        • Communism
    • CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET
    • BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS PRODUCT MARKET CIRCULAR FLOW MODEL
    • BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET CIRCULAR FLOW MODEL
    • BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES CIRCULAR FLOW MODEL
    • BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE CIRCULAR FLOW MODEL
    • CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE
      • economizing problem
      • economic resources
      • land
      • capital
      • investment
      • labor
      • entrepreneurial ability
      • factors of production
      • full employment
      • full production
      • productive efficiency
      • allocative efficiency
      • consumer goods
      • capital goods
      Key Terms production possibilities table production possibilities curve opportunity cost law of increasing opportunity costs economic growth economic system market system capitalism command system resource market product market circular flow model Copyright McGraw-Hill/Irwin, 2005 BACK END
    • INDIVIDUAL MARKETS: DEMAND & SUPPLY Chapter 3 Coming Soon…