Chap02rev

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Chap02rev

  1. 1. The Economizing Problem 2 C H A P T E R
  2. 2. THE FOUNDATION OF ECONOMICS SOCIETY HAS VIRTUALLY UNLIMITED WANTS...
  3. 3. BUT LIMITED OR SCARCE PRODUCTIVE RESOURCES! SOCIETY HAS VIRTUALLY UNLIMITED WANTS... THE FOUNDATION OF ECONOMICS
  4. 4. GOODS & SERVICES PROVIDE... UTILITY
  5. 5. LUXURIES GOODS & SERVICES PROVIDE... UTILITY
  6. 6. LUXURIES vs. NECESSITIES GOODS & SERVICES PROVIDE... UTILITY
  7. 7. PROPERTY RESOURCES LAND SCARCE RESOURCES ECONOMIC RESOURCES
  8. 8. PROPERTY RESOURCES LAND CAPITAL SCARCE RESOURCES ECONOMIC RESOURCES
  9. 9. PROPERTY RESOURCES LAND CAPITAL SCARCE RESOURCES ECONOMIC RESOURCES INVESTMENT FINANCIAL CAPITAL REAL CAPITAL Notes...
  10. 10. PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES SCARCE RESOURCES ECONOMIC RESOURCES
  11. 11. PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR SCARCE RESOURCES ECONOMIC RESOURCES
  12. 12. PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR ENTREPRENEURIAL ABILITY SCARCE RESOURCES ECONOMIC RESOURCES Also known as the Input Factors of Production
  13. 13. ENTREPRENEURIAL ABILITY Takes The Initiative Makes Strategic Business Decisions Innovator The Risk Bearer
  14. 14. RESOURCE PAYMENTS RENTAL INCOME INTEREST INCOME WAGES PROFIT & LOSS PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR ENTREPRENEUR
  15. 15. Productive Efficiency Full Employment Full Production Allocative Efficiency ECONOMICS & EFFICIENCY
  16. 16. PRODUCTION POSSIBILITIES Assumes... Full Employment and Productive Efficiency Fixed Resources Fixed Technology Two Goods for example...
  17. 17. PRODUCTION POSSIBILITIES Assumes... Full Employment and Productive Efficiency Fixed Resources Fixed Technology Two Goods for example... A Consumer Good PIZZA
  18. 18. Two Goods Fixed Resources Fixed Technology Assumes... Full Employment and Productive Efficiency PRODUCTION POSSIBILITIES for example... A Capital Good Robots
  19. 19. 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
  20. 20. PIZZA 0 1 2 3 4 (in hundred thousands) ROBOTS 10 9 7 4 0 (in thousands) in table form PRODUCTION POSSIBILITIES
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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...
  28. 28. 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
  29. 29. 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
  30. 30. 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.
  31. 31. PRODUCTION POSSIBILITIES MC MB Allocative Efficiency: MB=MC MB=MC P Q Marginal Benefit & Cost Quantity of Pizzas $15 10 5 1 2 3
  32. 32. 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
  33. 33. 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...
  34. 34. 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
  35. 35. 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
  36. 36. 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
  37. 37. 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
  38. 38. Applications... <ul><li>Unemployment and Productive Inefficiency </li></ul>PRODUCTION POSSIBILITIES
  39. 39. Applications... <ul><li>Unemployment and Productive Inefficiency </li></ul><ul><li>Tradeoffs and Opportunity Costs </li></ul>PRODUCTION POSSIBILITIES
  40. 40. Applications... <ul><li>Unemployment and Productive Inefficiency </li></ul><ul><li>Tradeoffs and Opportunity Costs </li></ul><ul><li>Shifts in the Production Possibilities Curves </li></ul>PRODUCTION POSSIBILITIES
  41. 41. ECONOMIC SYSTEMS <ul><li>THE MARKET SYSTEM </li></ul><ul><ul><li>Pure Capitalism </li></ul></ul><ul><ul><li>Laissez-faire </li></ul></ul>
  42. 42. ECONOMIC SYSTEMS <ul><li>THE MARKET SYSTEM </li></ul><ul><ul><li>Pure Capitalism </li></ul></ul><ul><ul><li>Laissez-faire </li></ul></ul><ul><li>THE COMMAND SYSTEM </li></ul><ul><ul><li>Socialism </li></ul></ul><ul><ul><li>Communism </li></ul></ul>
  43. 43. CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET PRODUCT MARKET
  44. 44. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS PRODUCT MARKET CIRCULAR FLOW MODEL
  45. 45. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES GOODS & SERVICES GOODS & SERVICES PRODUCT MARKET CIRCULAR FLOW MODEL
  46. 46. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES CIRCULAR FLOW MODEL
  47. 47. BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE CIRCULAR FLOW MODEL
  48. 48. CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCES INPUTS $ COSTS $ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION $ REVENUE
  49. 49. <ul><li>economizing problem </li></ul><ul><li>economic resources </li></ul><ul><li>land </li></ul><ul><li>capital </li></ul><ul><li>investment </li></ul><ul><li>labor </li></ul><ul><li>entrepreneurial ability </li></ul><ul><li>factors of production </li></ul><ul><li>full employment </li></ul><ul><li>full production </li></ul><ul><li>productive efficiency </li></ul><ul><li>allocative efficiency </li></ul><ul><li>consumer goods </li></ul><ul><li>capital goods </li></ul>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
  50. 50. INDIVIDUAL MARKETS: DEMAND & SUPPLY Chapter 3 Coming Soon…

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