Basic Models SFLS

1. First Basic Models of the Economy

2. FIRST BASIC MODELS OF THE ECONOMY 3.) Production Possibilities Curve 1.) Circular Flow Model 2.) Business Cycle Model

3. Households Firms G & S markets Demand stuff Supply stuff pay money earn income F & P markets Demand stuff Supply stuff earn income pay money Government transferstaxes taxessubsidies Demand stuff Demand stuff

6. 1.) Circular Flow. - a basic way of understanding how different parts of the economic system fit together. FIRST BASIC MODELS OF THE ECONOMY

7. 1.) Circular Flow. - Consumers in the Economy- Households FIRST BASIC MODELS OF THE ECONOMY

8. Households

9. 1.) Circular Flow. - Households - Producers in the economy.- Firms FIRST BASIC MODELS OF THE ECONOMY

10. Households Firms

11. 1.) Circular Flow. - Households - Firms - Where consumers go to buy things from producers. - Good and services Market FIRST BASIC MODELS OF THE ECONOMY

12. Households Firms G & S markets

13. Households Firms G & S markets Demand stuff Supply stuff pay money receive money

14. 1.) Circular Flow. - Households - Firms - Good and services Market - Where producers come to buy things from consumers. - Factors of Production Market FIRST BASIC MODELS OF THE ECONOMY

15. Households Firms G & S markets F & P markets

16. Households Firms G & S markets F & P markets Demand stuff Supply stuff earn income pay money

17. Households Firms G & S markets Demand stuff Supply stuff pay money earn income F & P markets Demand stuff Supply stuff earn income pay money

18. 1.) Circular Flow. - Households - Firms - Good and services Market - Factors of Production Market - Collects taxes, buys public goods and gives out transfers. - Government FIRST BASIC MODELS OF THE ECONOMY

19. Households Firms G & S markets F & P marketsGovernment

20. Households Firms G & S markets F & P marketsGovernment transferstaxes taxessubsidies Demand stuff Demand stuff

23. 2.) Business Cycle - Looking at how the economy grows over time. FIRST BASIC MODELS OF THE ECONOMY

24. - Looking at things today. Now they are in the current time. Short Run Growth 2.) Business Cycle FIRST BASIC MODELS OF THE ECONOMY ……….

25. Time Short Run Econ Growth - Looking at things today. Now they are in the current time. 2.) Business Cycle Model

26. 2.) Business Cycle - Looking at trend 趋向 over long periods of time. - Long Run Growth trend - Short Run Growth - Averaging out the short run. FIRST BASIC MODELS OF THE ECONOMY …………………………

27. Time Short Run Econ Growth Long Run - Looking at trend 趋向 over long periods of time. - Averaging out the short run. 2.) Business Cycle Model

28. or - high levels of consumer spending, business confidence, profits and investment. Boom 2.) Business Cycle -Expansion - Some times called recovery as well is coming out of a recession - returning consumer spending and business confidence. - Recovery FIRST BASIC MODELS OF THE ECONOMY

29. Time Short Run Econ Growth Boomor - high levels of consumer spending, business confidence, profits and investment. Expansion - Some times called recovery as well is coming out of a recession 2.) Business Cycle Model

30. -Peak or - height of the business cycle. Boom 2.) Business Cycle -Expansion FIRST BASIC MODELS OF THE ECONOMY

31. Time Short Run Econ Growth - height of the business cycle. Peak 2.) Business Cycle Model

32. -Peak or Boom 2.) Business Cycle -Expansion - Recession Slumpor - falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on investment. FIRST BASIC MODELS OF THE ECONOMY

33. Time Short Run Econ Growth SlumporRecession - falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on investment. 2.) Business Cycle Model

34. -Peak or Boom 2.) Business Cycle -Expansion - Recession Slumpor - Bottom of the business cycle-Trough FIRST BASIC MODELS OF THE ECONOMY

35. Time Short Run Econ Growth Trough - bottom of the business cycle. 2.) Business Cycle Model

36. Time Short Run Econ Growth Long Run 2.) Business Cycle Model Peak Recession Trough Expansion

38. 3.) Production Possibilities Curve (PPC) Production Possibilities Frontier (PPF) Also called: - a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology. FIRST BASIC MODELS OF THE ECONOMY

39. 1.) Full employment: all resources are used 2.) Productive efficiency: goods are being produced in the least costly way 4.) Fixed 不变 amount of resources 5.) Fixed 不变 amount of technology 3.) Production Possibilities Curve Assumptions 假定:

40. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title The PPC could be a straight line, or bow- shaped. Depends on what happens to opportunity cost as economy shifts resources from one industry to the other. 3.) Production Possibilities Curve 枪炮黄油

41. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A B C Any point that is OUTSIDE the PPC is Impossible! Impossible! 3.) Production Possibilities Curve

42. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A B C D Any point that is WITHIN the PPC is Inefficient. It means the resources are not completely being used. Inefficient All Area! 3.) Production Possibilities Curve

43. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A B C D Any point that is ON the PPC is Efficient. It means the resources being completely used. Efficient All are Points! 3.) Production Possibilities Curve

44. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods Economic Growth - Sustained expansion of the production possibilities frontier - to have economic growth means to increase the PPF so more can be produced without having to trade-off for as much. 3.) Production Possibilities Curve

45. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A Allocative Efficiency + Economic Growth By producing more Capital goods today, that means you can have more Capital goods and Consumption goods in the future. 3.) Production Possibilities Curve

46. So to Summarize…

47. 1.) Circular Flow. - a basic way of understanding how different parts of the economic system fit together. FIRST BASIC MODELS OF THE ECONOMY

49. 2.) Business Cycle - Looking at how the economy grows over time. FIRST BASIC MODELS OF THE ECONOMY

50. Time Short Run Econ Growth Long Run 2.) Business Cycle Model Peak Recession Trough Expansion

51. 3.) Production Possibilities Curve (PPC) Production Possibilities Frontier (PPF) Also called: - a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology. FIRST BASIC MODELS OF THE ECONOMY

52. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title The PPC could be a straight line, or bow- shaped. Depends on what happens to opportunity cost as economy shifts resources from one industry to the other. 3.) Production Possibilities Curve 枪炮黄油

53. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A B C D Any point that is ON the PPC is Efficient. It means the resources being completely used. Efficient All are Points! 3.) Production Possibilities Curve

54. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A B C D Any point that is WITHIN the PPC is Inefficient. It means the resources are not completely being used. Inefficient All Area! 3.) Production Possibilities Curve

55. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A B C Any point that is OUTSIDE the PPC is Impossible! Impossible! 3.) Production Possibilities Curve

56. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods Economic Growth - Sustained expansion of the production possibilities frontier - to have economic growth means to increase the PPF so more can be produced without having to trade-off for as much. 3.) Production Possibilities Curve

57. 0 1,000 2,000 3,000 4,000 5,000 6,000 0 100 200 300 400 500 600 AxisTitle Axis Title Consumption goods Capital goods A Allocative Efficiency + Economic Growth By producing more Capital goods today, that means you can have more Capital goods and Consumption goods in the future. 3.) Production Possibilities Curve

58. The End. Thank you  Please view the next PPT about the PPC in more detail.

Basic Models SFLS

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Basic Models SFLS