1.0 intro to economics

8/18/2019 1.0 Intro to Economics

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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%*

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/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


+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


+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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1.0 intro to economics

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