1.0 intro to economics
TRANSCRIPT
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INTRODUCTION
ECONOMICS
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Chapter Objectives
• Economics defined
– Microeconomics vs. macroeconomics
– Positive vs normative economic statements
• Resource scarcity and the economizing problem
• Production possibilities model
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• Econoics• ! social science that st"#ies abo"t h"an
behavior in ho$ the% produce, distribute, andconsume &oo#s an# services in the $or'# o(
scarce resources to satis(% human unlimitedwants.
– Production?
– Distribution? – onsumption?
– Resources? !carce?
– "uman wants? #nlimited human wants?
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)ranches o( Econoics
• Microeconomics – ! st"#% o( econoics at speci(ic econoic
"nits*
– E+ap'es, ho"seho'# (irs &overnentsector o( econo% in#"str%*
• Macroeconomics – ! st"#% o( econoics as a $ho'e or in
a&&re&ate*
– E+ap'es, in('ation .D/ "nep'o%ent
incoe #istrib"tion
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Econoic etho#o'o&%
• The st"#% o( econoics re'ies on scienti(ic etho#s $hich consist o(severa' e'eents,
– observation o( (acts0rea'-$or'# #ata
– Establish hypothesis 0possib'e e+p'anation o( ca"se an# e((ect is#eve'ope#*
– Running a test – b% coparin& the o"tcoes o( speci(ic events to theo"tcoe o( pre#icte# b% h%pothesis*
– The acceptance, re$ection or modification o( the h%pothesis base# onthese coparisons*
–The continued testing of the hypothesis against facts*• The (ina' res"'ts trans(orthe h%pothesinto a theory.
• ! $e'' teste# an# accepte# theor% $i'' be re(erre# to as %aws or principles.• These a$s an# /rincip'es are incorporate# in models*• Cobinations o( 'a$s princip'es an# o#e's enable economists to understand
an# e+p'ain rea'it% an# to pre#ict vario"s o"tcoes o( partic"'ar action*
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&bserving an# co''ectin&rea'-$or'# #ata
Deve'opin& h%pothesis
R"n tests,
3%pothesis Testin&
!ccept reject an#o#i(ie# h%pothesis
4avorab'e res"'ts o( h%pothesisevo'ves into theor%
5e'' accepte# theory is re(erre#as %aws or Principles
a$s an# /rincip'es are incorporate# intomodel $hich cobinations o( a'' three $i''
enhance "n#erstan#in& an# e+p'anations toscientists*
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Theoretica' econoics
T3EORIES
4!CTS
/OIC6 ECONOMICS
Deduction
- The process $heretheories are estab'ishe#prior7ear'ier to #ata
co''ection*
'nduction
- The process $heretheories are estab'ishe#a(ter #ata are co''ecte#
or proven b% (acts*
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Terino'o&ies
• .enera'i8ations – a'' theories princip'es an# 'a$s are &enera'i8ations
re'atin& to econoic behavior*
Or • !bstractions – a'' theories princip'es an# 'a$s are abstractions or
sip'i(ications that oit irre'evant (acts an#circ"stances* behavior*
• ceteris parib"s - Other-thin&s-e9"a' ass"ption – Is "se# to constr"ct &enera'i8ations $hich int"rn $i''
(or"'ate theories 'a$s an# princip'es*
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/ositive vs* Norative Econoics
• Positive economics – 4oc"ses on (acts an# ca"se-an#-e((ect re'ationships* – Concern $ith :$hat is;* – Inc'"#es #escription theor% #eve'opent an# theor%
testin&*
– Tries to estab'ish scienti(ic stateents abo"t econoicbehavior an# it #ea's $ith $hat econo% is act"a''% 'i
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E+ap'es• P&!')'*E
• 1* The "nep'o%ent rate insevera' E"ropean co"ntries
are hi&her than that in theUnite# States*
• The ar
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/it(a''s 0prob'es to So"n# Reasonin&
• )iases - a% c'o"# thin
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• allacy of omposition -&vergeneralization
– !ss"in& $hat is tr"e (or one in#ivi#"a' or part o( a $ho'e is necessari'%tr"e (or a &ro"p o( in#ivi#"a's or the $ho'e societ% *
– E/ample0 rec
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Econoics
Economics0
• Is a socia' sc* that st"#ies abo"t h"an behavior in ho$ the%pro#"ce #istrib"te an# cons"e &oo#s an# services in a $or'# o(scarce reso"rce*
• Econoic wants e/ceed economic resources 0pro#"ctivecapacit%*
• Socia' science concerne# $ith a
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!carcity
1hat is !carcity?• !n econoi8in& prob'e in $hich resources are
'iite# 0scarce $hi'e human wants are "n'iite#*
• Scarce 0'iite# resources2actors of production
–an# –abor –Capita' –Entreprene"ria' !bi'it%
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Disc"ssion
• Is it tr"e reso"rces are scarce
• 6ES NO
• /rovi#e %o"r j"sti(ication
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• 5h% reso"rces are consi#ere# as scarce?
– reso"rces are consi#ere# &i(ts o( nat"re an# ares"bject to #ep'etion* i*e* Oi'*
– Rapi# c%c'es o( o#erni8ation an# econoic &ro$thhave #aa&e the eco'o&ica' s%ste an# #ist"rb therepro#"ction process an# the re-&eneration o( ne$
reso"rces*
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D"e to scarcit% prob'e@ peop'e could not &et ever%thin&
the% $ant an# #"e to that@
• hoices must be made
– Re(errin& to choosin& the best o( a'' avai'ab'ea'ternatives*
• &pportunity cost
– Is re(errin& to the ne+t best a'ternative that has tobe (or&one7sacri(ice#*
the concept o( scarcit% choice an# opport"nit% costs are
i''"strate# thro"&h the concept o( the /ro#"ction
/ossibi'ities Mo#e'*
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Production Possibilities Model -PPM
• //M I''"strates pro#"ction choices
• !ss"ptions,
– 4i+e# 0'iite# reso"rces – 4"'' ep'o%ent 0opti" pro#"ction 'eve'
– 4i+e# techno'o&%
– T$o &oo#s
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)ype of Product
Pizzas
Machines 0in tho"san#s
Production +lternatives
+ 3 D E
45 6 7 8 5
5 4 9 : 8
Plot Points to Create Graph…
/ro#"ction /ossibi'ities Tab'e
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0in h"n#re# tho"san#s
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/ro#"ction /ossibi'ities C"rve
Pizzas
' n d u s t r i a l R o b o t s
+ttainable
5 4 9 : 8 ; < 7 = 6
484:
49
44
45
6
=
7
<
;
8
: 9
4
#nattainable
/ro#"ction point o"tsi#e the//C, is "nattainab'e #"e to'iite# reso"rces an# pro#"ctioncapacit%*
+
3
D
E
)he Production Possibilities urve0
!'ternatives7choices o( opti" pro#"ctionpoints 0pro#"ction at econoic e((icienc%*
1-2?
/ro#"ction point be'o$ the //C,is attainab'e b"t is consi#ere# asUn#er or Unep'o%ent
>
F, 5hat are the Conse9"ences o( unemployment?
@rowth of Production Possibilities urve0
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@rowth of Production Possibilities urve0
- re(errin& to the oveent o( the //C to the ri&ht*
Pizzas
' n d u s t r i a l R o b o t s
+ttainable
5 4 9 : 8 ; < 7 = 6
484:
49
44
45
6
=
7
<
;
8
: 9
4
#nattainable
+
3
D
E
actors that contribute to
economic growth0
- More reso"rces avai'ab'e- )etter 9"a'it% reso"rces-Techno'o&ica' a#vances- Internationa' Tra#e
+A
3A
A
DA
EA
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Production Possibilities urvethe iss"es o(, i* a$ o( 'ncreasing Opport"nit% Cost ii* Shape o( the C"rve
Pizzas
' n d u s t r i a l R o b o t s
+ttainable
5 4 9 : 8 ; < 7 = 6
484:
49
44
45
6
=
7
<
;
8
: 9
4
#nattainable
+
3
D
E
+A
3A
A
DA
EA
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The 4"t"re Econo%
• Conse9"ences o( unemployment
• Economic growth
– More reso"rces
– )etter 9"a'it% reso"rces – Techno'o&ica' a#vances
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4"t"re /ossibi'ities
.oo#s (or the /resent
. o o # s ( o r t h e 4 " t " r e
. o o # s ( o r t h e 4 " t " r e
.oo#s (or the /resent
P
F
urrent
urve
urrent
urve
uture
urveuture
urve
Presentville utureville
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EGERCISES• )e'o$ are si+ stateents* In#icate $hether each one pertains to
icroeconoics 0MIC or acroeconoics 0M!C*
• 0a :The in('ation rate in the Unite# States hit its 'o$est 'eve' in the'ast t$ent% %ears*;
• 0b :The pro(its o( Microso(t rose 2? percent #"rin& the past 9"arter*;
• 0c :Rains (ro E' Nino a&ain hit the Ca'i(ornia re&ion ca"sin& severe('oo#in& in (ars* The prices (or citr"s an# pro#"ce are e+pecte# torise sharp'%*;
• 0# :The nationHs econo% &re$ at an ann"a' rate o( A* percent in
the (ina' 9"arter o( the %ear*;• 0e :The tra#e #e(icit in the Unite# States $as =2? bi''ion 'ast onth*;
• 0( :.enera' Motors p'ans to spen# =>?? i''ion on a ne$a"toobi'e p'ant*;
•
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)e'o$ are si+ stateents* I#enti(% $hether each is a positive ornorative stateent*
• 0a The nationa' econo% &re$ at a *2 percenta&e rate in the 'ast9"arter as the econo% contin"es to recovers (ro the pastrecession*
• 0b The "nep'o%ent rate (e'' to J* percent this onth an# ise+pecte# to (a'' to J*J percent ne+t onth*
• 0c The rate o( in('ation sho"'# be re#"ce# to 8ero to aintain theva'"e o( the U*S* #o''ar*
• 0# The &overnent sho"'# ta
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)e'o$ are si+ stateents* I#enti(% $hether each is a positive ornorative stateent*
0aThe ini" $a&e $o"'# be increase# so 'o$-incoe $or
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ombination
@rain-metric tons
+irplanes-4,555s
! ?
) 1B
C 2 J
D A B
E BB A
4 J? 2
. JB 13 J ?
a* constr"ct a pro#"ction possibi'ities c"rve (ro this in(oration p'acin& &rainon the vertica' a+is an# airp'anes on the hori8onta' a+is*b* 5hat is the opport"nit% cost o( pro#"cin& the (irst "nit o( airp'anes
c* The marginal opport"nit% cost o( pro#"cin& the (o"rth "nit o( airp'anes
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0a See graph.0bT$o "nits o( &rain 0J – JB are sacri(ice# i( one "nit o( p'anes ispro#"ce#*0c5hen the (o"rth "nit o( p'anes is pro#"ce# the ar&ina' opport"nit%cost is ei&ht "nits o( &rain 0BB – A* Kte+t, E pp* 11-12@ M! pp* 11-12@ MI pp* 11-12L
!NS5ERS,
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