The study of economics explains how
productive resources are used to
provide the goods and services that
satisfy human wants and needs.
Scarcity is the fundamental economic
problem facing all societies. We have
limited resources and unlimited needs
and wants.
Human
Natural
Capital
Needs:
Food
Shelter
Clothing
Land (natural resources)
Labor (human resources)
Capital (equipment, machinery)
Entrepreneurship
What goods and services will be
produced?
How will goods and services be
produced?
Who will consume the goods and
services? (How should it be shared?)
Economics is considered a social
science. Why?
What do economists do?
What is the difference between
microeconomics and macroeconomics?
Microeconomics and Macroeconomics
• Microeconomics
• Decision making by individual
units
• Macroeconomics
• Examines either the economy
as a whole or its basic
subdivisions or aggregates
LO3 1-9
Positive and Normative Economics
• Positive economics
• Deals with economic facts
• Normative economics
• A subjective perspective of
the economy
LO3 1-10
Theories, Principles, and Models
• The scientific method
• Economic principles
•Generalizations
•Other-things-equal assumption
•Graphical expression
Observe Formulate a hypothesis Test the hypothesis
Accept, reject, or modify the hypothesis
Continue to test the hypothesis, if necessary
LO2 1-11
Technology
Specialization
Division of Labor
Trade-off
Opportunity Cost
Production Possibilities Curve (PPC)
Type of Product
Pizzas(in hundred thousands)
Industrial Robots(in thousands)
Production Alternatives
A B C D E
10 9 7 4 0
0 1 2 3 4
Plot the Points to Create the Graph…
Production Possibilities Model
LO5 1-14
Pizzas
Ind
ust
rial
Ro
bo
ts
Attainable
0 1 2 3 4 5 6 7 8 9
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
C
D
E
U
The law of
increasing
opportunity
costs makes
the PPC
concave.
Production Possibilities Model
LO5 1-15
A Growing Economy
Pizzas
Ind
ust
rial
Ro
bo
ts
Attainable
0 1 2 3 4 5 6 7 8 9
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
C
D
E
EconomicGrowth
Now Attainable
A’
B’
C’
D’
E’
LO6 1-16
Present Choices, Future Possibilities
Goods for the Present
Go
od
s fo
r th
e F
utu
re
Go
od
s fo
r th
e F
utu
re
Goods for the Present
P
F
CurrentCurve
CurrentCurve
FutureCurve
FutureCurve
Presentville Futureville
Compare Two Hypothetical Economies
LO6 1-17