intro powerpoint

80
Chapter 1 Econ. I’m taking a course that has the Econ. I’m taking a course that has the h ighest ighest failure rate at college. failure rate at college. Uncle Sam wants you to Uncle Sam wants you to do better in economics. do better in economics. What is Economics? What is Economics?

Upload: mrred

Post on 16-Aug-2014

813 views

Category:

Documents


2 download

DESCRIPTION

Unit One Intro Powerpoint. Know it!

TRANSCRIPT

Page 1: Intro Powerpoint

Chapter 1 Econ. I’m taking a course that has the Econ. I’m taking a course that has the hhighestighest failure rate at college. failure rate at college.

Uncle Sam wants you toUncle Sam wants you todo better in economics.do better in economics.

What is Economics?What is Economics?

Page 2: Intro Powerpoint

Economizing ProblemEconomizing Problem

Dealing with ““ScarcityScarcity””

Page 3: Intro Powerpoint

TThe he HHot ot MMajor ajor FFor or UUndergrads ndergrads IIss EEconomicsconomics WSJ – 2005WSJ – 2005

• Universities awarded 16,141 economics16,141 economics degrees last year at 272 colleges & universities which is up 40% in five yearsup 40% in five years.

• There has been a clear explosion of economics as a majorclear explosion of economics as a major, particularly at the top colleges.

• At New York UniversityNew York University, the econ major has doubled in econ major has doubled in 10 years10 years. At 800800, it is now the most popular major. Economics is also the number one major number one major atat Harvard (964 Harvard (964 studentsstudents)),, Columbia (up 67Columbia (up 67%% in in 5 5 yryr..)), StanfordStanford, PennPenn, PrincetonPrinceton, Chicago (24% of graduating class)Chicago (24% of graduating class), and 2nd at BrownBrown, YaleYale, and University of California at BerkeleyUniversity of California at Berkeley.

• The increase in the numbers is the result of many students seeing students seeing economics as the best vehicle promising good pay and securityeconomics as the best vehicle promising good pay and security.

• Students realize that understanding economics has become a fundamental fundamental necessity of lifenecessity of life. Economics rising popularity is even globalglobal. Econ majors in Poland have doubledPoland have doubled in 6 years. In RussiaRussia, econ majors have jumped from 18% of students to 31%31%. Also, the chairman of the economics department at London School of EconomicsLondon School of Economics says econ’s popularity is at an all time highall time high.

““Econ, EconEcon, Econ,,I want to majorI want to majorin Econ.”in Econ.”

Page 4: Intro Powerpoint

MICROECONOMICSMICROECONOMICS......

““Beautiful Beautiful forest!.forest!.

““Beautiful Beautiful leaf!”leaf!”

MACROECONOMICSMACROECONOMICS......

Page 5: Intro Powerpoint

1.1. MacroMacro [national] economics – concerned with the economy as a wholeeconomy as a whole Macro

examines the “forest, not the trees, “forest, not the trees, leaves, or specific pieces of bark.”leaves, or specific pieces of bark.”

.2. MicroMicro [details of the big picture] – concerned with specific specific economic unitseconomic units or individual markets under a microscope. Emphasis is on individual households, industries, or firms [like the # of workers employed by Ford] [Concerns the components of the economy] Micro examines the “trees, leaves, & pieces of bark, “trees, leaves, & pieces of bark, rather than the forest.”rather than the forest.”

Great Forest!Great Forest!

Nice bark!Nice bark!

Page 6: Intro Powerpoint

.

ProductionProductionMicroeconomicsMicroeconomics MacroeconomicsMacroeconomicsHow much steelHow much steel Total industrial outputTotal industrial outputHow much office spaceHow much office space Gross Domestic PGross Domestic Productroduct

PricesPricesPrice of individual goodsPrice of individual goods Price of medical carePrice of medical care

Rate of inflationRate of inflation EmploymentEmployment

Jobs in the steel industryJobs in the steel industry Total number of jobsTotal number of jobsEconomy’s unemploymentEconomy’s unemployment

““Check out those Check out those pieces of bark!.pieces of bark!.

““Beautiful, Beautiful, beautiful beautiful forest!”forest!”

MacroMacro[large](telescope) “whole economy” [economy-wide issues]

MicroMicro[small](microscope] “segment of the economy” [issues in the economy]

Page 7: Intro Powerpoint

IIs the s the ffollowing ollowing MicroMicro oror MacroMacro??

1. The price1. The price of of digital cameras increased 5%digital cameras increased 5% last last year.year. 2. Unemployment was 5.4% for the U.S. workforce.2. Unemployment was 5.4% for the U.S. workforce.3. Unemployment in the auto industry was 8% last year.3. Unemployment in the auto industry was 8% last year.4. Duck N4. Duck National ational Bank lowered its interest rates on CDs to 8%.Bank lowered its interest rates on CDs to 8%.5. The Inflation rate rose to 2.7% last year.5. The Inflation rate rose to 2.7% last year.6. The computer industry laid off 8% of its workers last year.6. The computer industry laid off 8% of its workers last year.7. The price of gasoline rose 25% last year. 7. The price of gasoline rose 25% last year.

““What forest, check What forest, check these branches, these branches, limbs, and leaves.”limbs, and leaves.”

Page 8: Intro Powerpoint

BUT LIMITED BUT LIMITED OROR SCARCE RESOURCES! SCARCE RESOURCES!

SOCIETY HAS VIRTUALLYSOCIETY HAS VIRTUALLY UNLIMITED UNLIMITED WANTSWANTS......THE FOUNDATION OF ECONOMICSTHE FOUNDATION OF ECONOMICS

Page 9: Intro Powerpoint

ScarcityScarcity – Wants > Availability – Wants > Availability of Resourcesof Resources

Page 10: Intro Powerpoint

ECONOMICSECONOMICS - - “Science of scarcity”“Science of scarcity”-the study of the choiceschoices people make in an effort to satisfy their unlimited needs and wantsunlimited needs and wants from limited resourceslimited resources.

EconomicsEconomics is the academic discipline most discussedmost discussed by the general public.It is also one of the least understoodleast understood. [“Language of graphs”][“Language of graphs”]

ScarcityScarcity ChoicesChoices Opportunity CostOpportunity Cost

Page 11: Intro Powerpoint

FoodFood, , clothingclothing, , sheltershelter,,Chrysler 300, mansion, Nintendo DS,Chrysler 300, mansion, Nintendo DS,

jewelry, iPod, projector, digital camera,jewelry, iPod, projector, digital camera,good health, children, camcorder, laptopgood health, children, camcorder, laptopwarmth, indoor plumbing, rollerblades,warmth, indoor plumbing, rollerblades,a sense of personal worth, Plasma TV,a sense of personal worth, Plasma TV,

literacy, high economics grade, cellliteracy, high economics grade, cellphone, compact discs, moneyphone, compact discs, money

““Need”Need” those first those firstthree to survive.three to survive.

Unlimited Human WantsUnlimited Human Wants Limited ResourcesLimited Resources

Scarcity ProblemScarcity Problem

LandLand,, LLabor,abor, CCapitalapital,, EEntrepreneurntrepreneurRRent,ent, WWages,ages, IInterest,nterest, PProfitsrofits

Page 12: Intro Powerpoint

THE FOUNDATION OF ECONOMICSTHE FOUNDATION OF ECONOMICSSOCIETY HAS VIRTUALLYSOCIETY HAS VIRTUALLY UNLIMITED WANTS...UNLIMITED WANTS...

Page 13: Intro Powerpoint

GOODS & SERVICES PROVIDE...GOODS & SERVICES PROVIDE...

UTILITYUTILITY [satisfactionsatisfaction]

Page 14: Intro Powerpoint

LUXURIESLUXURIES

GOODS & SERVICES PROVIDE...GOODS & SERVICES PROVIDE...

UTILITY[satisfactionsatisfaction]

Page 15: Intro Powerpoint

NECESSITIESNECESSITIES

FoodFood ClothingClothing ShelterShelter

LuxuriesLuxuries

V.V..

Page 16: Intro Powerpoint

..

SScarcitycarcity ChoicesChoices Opportunity CostsOpportunity Costs

11stst Choice Choice (and a good one)(and a good one)

The The Opportunity CostOpportunity Cost is the is the Opportunity LostOpportunity Lost

[“what is possible for $10,000$10,000”]

Opportunity CostOpportunity Cost22ndnd Choice Choice

Page 17: Intro Powerpoint

Trade-offsTrade-offs–decision (choicechoice) to get more of one thing means to accept less of another.

Opportunity CostOpportunity Cost – – 22ndnd Choice Choice(most important concept in economics)

[what you sacrifice when you make a choice]

Charlie O’ConnellCharlie O’Connell

Sarah BSarah B KrisilyKrisily

““I’m in love withI’m in love withboth, but can both, but can have only onehave only one.”.”

The BachelorThe Bachelor

Page 18: Intro Powerpoint

And – As 40 Million Watched, And – As 40 Million Watched, Joe Millionaire chose Zora over SarahJoe Millionaire chose Zora over Sarah

Page 19: Intro Powerpoint

Economic Way of ThinkingEconomic Way of ThinkingDo the Benefits outweigh the cost?Do the Benefits outweigh the cost?

Scales of EconomicsScales of Economics

Expected marginal benefits Expected marginal costsExpected marginal costs

Choices are primarily marginal – not all or nothing.Choices are primarily marginal – not all or nothing.

Page 20: Intro Powerpoint
Page 21: Intro Powerpoint

…are all the alternatives in making a decision

…the cost of the next best use of money, time, or resources (you’re 2nd Choice)

Page 22: Intro Powerpoint

… Are all of the alternatives that go into making a decision….

In this case let’s say you have many different choices of what you want to do on Saturday night.

Page 23: Intro Powerpoint

Here are all of your Choices on Saturday night…which are…

• Go on a Date• Hang out with friends• Watch TV• Read a good book• Hang out with parents• Go to bed early

Opportunity Cost is different, though…

These are all of your trade-offs

Page 24: Intro Powerpoint

• Remember… Opportunity Cost is the next highest valued alternative. (The 2nd Best Choice)

Page 25: Intro Powerpoint

As you recall, these are the choices on Saturday night

• Go on a Date• Hang out with friends• Watch TV• Read a good book• Hang out with parents• Go to bed early

You choose the one that will give the most satisfaction for the price that has to be paid

Page 26: Intro Powerpoint

The ranking’s are…• Go on a Date• Hang out with his friends• Watch TV• Read a good book• Hang out with parents• Go to bed early

1

2

3

4

5

6

Obviously you do not go through this much thought when making a decision…

Page 27: Intro Powerpoint

What is the opportunity cost of going on the date?

Page 28: Intro Powerpoint

Look again at the definition of Opportunity Cost

…… the cost of the next best use of money, time, or resources

Page 29: Intro Powerpoint

• The opportunity cost was giving up the reading of a good book, the 2nd Choice

• Also, you must consider the financial cost of the date, how else you could have spent the money.

Page 30: Intro Powerpoint

Remembering Opportunity Cost when making a decision is the start of your new way of thinking, the Economic Way of Thinking.

Page 31: Intro Powerpoint

RESOURCE RESOURCE PAYMENTSPAYMENTS

RENTAL INCOMERENTAL INCOME

INTEREST INCOMEINTEREST INCOME

WAGESWAGES

PROFIT & LOSSPROFIT & LOSS

LANDLAND

CAPITALCAPITALHUMAN RESOURCESHUMAN RESOURCES

LABORLABOR

ENTREPRENEURENTREPRENEUR

Property ResourcesProperty Resources

Page 32: Intro Powerpoint

When It comes to Smoking, Don’t Let YourWhen It comes to Smoking, Don’t Let YourPeers Knock You Down To Their LevelPeers Knock You Down To Their Level

Page 33: Intro Powerpoint

Bring Your Peers Up To Your LevelBring Your Peers Up To Your Level

““Don’t smoke,Don’t smoke,don’t Smoke.”don’t Smoke.”

Page 34: Intro Powerpoint

Review• What is the fundamental economic

problem? • What does TANSTAAFL mean? • Every choice has a __?__. • Your next best use of time, $,

resources? • Why did the chicken cross the road? • What are the 4 Factors of

production, with examples please? • How does economics help people

make better decisions?

Page 35: Intro Powerpoint

..

1.1. SScarcitycarcity is represented by the frontier line.

2. ChoicesChoices - represented by pts A, B. or C.

3. Opportunity CostOpportunity Cost is illustrated in terms of moving from one point to another when resources are utilized to their full potential. [must make choices]

4. EfficiencyEfficiency - producing maximum output with available resources and technology.

5. Economic growthEconomic growth

5 PPC5 PPC Concepts Concepts

Page 36: Intro Powerpoint

And How Is And How Is Economic GrowthEconomic Growth Demonstrated Demonstrated on aon a Graph? Like This Graph? Like This

Economic GrowthEconomic Growth

A

B

C

D

ab

Cap

ital G

oods

Consumer Goods0

[Ability to produce a larger[Ability to produce a largertotal output over time]total output over time]

Page 37: Intro Powerpoint

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIESAssumes...EfficiencyFixed ResourcesFixed TechnologyTwo Products

for example...

A Capital GoodA Capital Good A Consumer GoodA Consumer Good

Page 38: Intro Powerpoint

Using all of our resources, to get some pizza, we must giveup some robot arms!

for example...

What if we could only produce ...

10,000 Robot Arms10,000 Robot Arms

or400,000 Pizzas400,000 Pizzas

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 39: Intro Powerpoint

PIZZAPIZZA 0 1 2 3 4(in hundred thousands)RobotsRobots 10 9 7 4 0(in thousands)

in table formin table form

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 40: Intro Powerpoint

PIZZAPIZZA 0 1 2 3 4(in hundred thousands)RobotsRobots 10 9 7 4 0(in thousands)

in table formin table form

graphical form

Rob

ots

(thou

sand

s)

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 41: Intro Powerpoint

PIZZAPIZZA 00 1 2 3 4(in hundred thousands)

RobotsRobots 1010 9 7 4 0(in thousands)

in table formin table form

graphical formR

obot

sR

obot

s(th

ousa

nds)

PizzasPizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 42: Intro Powerpoint

PIZZAPIZZA 0 11 2 3 4(in hundred thousands)

RobotsRobots 10 99 7 4 0(in thousands)

in table form

graphical formR

obot

sR

obot

s(th

ousa

nds)

PizzasPizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 43: Intro Powerpoint

PIZZAPIZZA 0 1 22 3 4(in hundred thousands)

RobotsRobots 10 9 77 4 0(in thousands)

in table form

graphical formR

obot

s(th

ousa

nds)

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 44: Intro Powerpoint

PIZZAPIZZA 0 1 2 33 4(in hundred thousands)

RobotsRobots 10 9 7 44 0(in thousands)

in table form

graphical formR

obot

s(th

ousa

nds)

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 45: Intro Powerpoint

PIZZAPIZZA 0 1 2 3 44(in hundred thousands)

RobotsRobots 10 9 7 4 00(in thousands)

in table form

graphical formR

obot

sR

obot

s(th

ousa

nds)

Pizzas Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 46: Intro Powerpoint

At any one point in time, a full-employment, full-production economy must sacrifice some of product to obtain more of product .

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIESLimited Resources means a limited output...Limited Resources means a limited output...

Page 47: Intro Powerpoint

Q

QQ

Rob

ots

Rob

ots

(thou

sand

s)

PizzasPizzas (hundred thousands)

14141313121211111010 99 88 77 66 55 44 33 22 11

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8

AA BBCC

DD

EE

WW

AttainableAttainablebutbut

InefficientInefficient

UnattainableUnattainable

AAttainablettainable& & EEfficientfficient

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 48: Intro Powerpoint

Q

Q

Rob

ots

(thou

sand

s)

Pizzas (hundred thousands)

1413121110 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8

A BC

D

E

W

Attainablebut

Inefficient

Unattainable

Attainable& Efficient

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Notes...LAW OF INCREASINGLAW OF INCREASINGOPPORTUNITY COSTSOPPORTUNITY COSTS

Page 49: Intro Powerpoint

QQ

QQ

Rob

ots

Rob

ots

(thou

sand

s)(th

ousa

nds)

Pizzas Pizzas (hundred thousands)(hundred thousands)

14141313121211111010 99 88 77 66 55 44 33 22 11

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8

A BC

D

E

W

Attainablebut

Inefficient

UnattainableUnattainable

AttainableAttainable& Efficient& Efficient

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Notes...LAW OF INCREASINGLAW OF INCREASINGOPPORTUNITY COSTSOPPORTUNITY COSTS

Economic resources arenot completely adapt-able to other uses.

It will be a CONCAVE curveIt will be a CONCAVE curve

Page 50: Intro Powerpoint

Q

Q

Rob

ots

Rob

ots

(thou

sand

s)

PizzasPizzas (hundred thousands)

1413121110 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8

UU

UUnemployment &nemployment &UUnderemployment nderemployment Shown by Point Shown by Point UU

More of either orMore of either orboth is possibleboth is possible

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 51: Intro Powerpoint

Q

Q

Rob

ots

Rob

ots

(thou

sand

s)

PizzasPizzas (hundred thousands)

1413121110 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Notes...Economic GrowthEconomic Growth

The ability to produce a larger total output - a rightward shift of the production possibilities curve caused by...

Page 52: Intro Powerpoint

Q

Q

Rob

ots

Rob

ots

(thou

sand

s)

PizzasPizzas (hundred thousands)

1413121110 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8

More of either orboth is possible

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Notes...Economic GrowthEconomic Growth

1. Increase in resources -

2. Better resource quality -2. Better resource quality -

3. Technological advances -3. Technological advances -

Page 53: Intro Powerpoint

Economic Economic GrowthGrowth

Q

Q

Rob

ots

Rob

ots

(thou

sand

s)

RadiosRadios (hundred thousands)

1413121110 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8

A’

B’

C’

D’

E’

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 54: Intro Powerpoint

Two Examples of Economic GrowthTwo Examples of Economic Growth

FAVORING PRESENT GOODSFAVORING PRESENT GOODS

Goods for the Present

Goo

ds fo

r the

Fut

ure

Goo

ds fo

r the

Fut

ure CURRENTCURRENT

CURVECURVE

CONSUMPTIONCONSUMPTION

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 55: Intro Powerpoint

Two Examples of Economic GrowthTwo Examples of Economic Growth

FAVORINGFAVORINGPRESENT GOODSPRESENT GOODS

FAVORINGFAVORINGFUTURE GOODSFUTURE GOODS

Goods for the PresentGoods for the Present

Goo

ds fo

r the

Fut

ure

Goo

ds fo

r the

Fut

ure CURRENTCURRENT

CURVECURVE

FUTUREFUTURECURVECURVE

CONSUMPTION

Goods for the PresentGoods for the Present

Goo

ds fo

r the

Fut

ure

Goo

ds fo

r the

Fut

ure

FUTUREFUTURECURVECURVE

CONSUMPTIONCONSUMPTION

CURRENTCURRENTCURVECURVE

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Page 56: Intro Powerpoint

Going to War (U.S.)Going to War (U.S.) When the U.S. entered WWI, we had severe unemployment. We were able to step up production of consumer goods and war materials simply by getting to full production. We went from 14.6% unemployment in 1940 to 1.2% in 1944. Over 7 million people went to work that were not working in 1940.

Going to War(Russia)Going to War(Russia). Russia, on the other hand, entered WWII at full capacity. So their preparedness entailed a shifting of resources from civilian goods and a drop in their standard of living.

The U.S. position was similar as we entered the Viet Nam War at full employment.We increased both military spending and domestic spending on the “War on Poverty.” Our attempt to achieve more “guns and butter” in a FE economy was doomed. We were trying to spend beyond capacity and ended up with double digit inflation in the 1970s.

Civilian GoodsCivilian Goods

FF

CC United StatesUnited States[Beginning of WWII][Beginning of WWII]

War GoodsWar Goods

Civilian GoodsCivilian Goods

War GoodsWar GoodsDD

CC RussiaRussia[Beginning of WWII][Beginning of WWII]

Page 57: Intro Powerpoint

40. At what letter is there unemploymentunemployment [recessionrecession]?41. What letters represent resources being used in their most productive mannermost productive manner? [full employment, full production, and best available technology]42. What letter represents an improvement in technologyimprovement in technology, therefore a new PPCnew PPC frontier line?43. The (straight line/curve) illustrates the “line of“line of increasing cost”increasing cost”??44. The (straight line/curve) illustrates the “law of constant cost.”“law of constant cost.”45. At what letter would there be the most economic growth inmost economic growth in thethe futurefuture if a country were producing there now?46. What is the opportunity costopportunity cost when moving from “C” to “D”“C” to “D”;; EE toto B B; & do we have to give anything up when moving from F to DF to D?

FF

A,B,C,D,EA,B,C,D,EGG

AACapitalCapital

ConsumerConsumer nono

AA BBCC GG

DD

EE

CCAAPPIITTAALL

GGOOOODDSS

Consumer Goods

FF

PPCPPC

Page 58: Intro Powerpoint

PPCPPC Practice Questions Practice Questions1. An economy that is fully employingfully employing all its productive resources but allocating less to investmentless to investment than than toto consumptionconsumption will be at which of the following positions on the PPC to the right? a. A b. B c. C d. D e. E

2. Which of the following best explains the shape of the PPC for the two-commoditytwo-commodity economy shown above? a. Opportunity cost of producing another unit of each stays the same. b. Opportunity cost of producing another unit of each decreasesdecreases. c. Opportunity cost of producing another unit of each increasesincreases.

3. Which of the following is true of the PPCtrue of the PPC on the right? a. Point Q is attainable but undesirable. b. Point R is unattainable but undesirable. c. A technological improvement of watches would move the economy from T to P. d The opportunity cost of moving from S to T is the # of watches given up.

4. If we move from B to CB to C on the graph (right), the opportunity costopportunity cost is? a. AH units of good Y b. OG units of good Y c. EF units of good X d. HG units of good Y

BB

CC

AA

HH

GG

OO

Page 59: Intro Powerpoint

PPCPPC PPracticeractice QQuestionsuestions [continued][continued]

5. Which of the following would cause the PPC shown (right) to shift outward? a. Reopening steel plants that had been closed b. Rehiring laid-off workers c. Using machinery for missile production instead of steel production d. Using machinery for steel production instead of missile production e. Developing a more efficient steelmaking process

6. Base on the graph (right), which statements are true? I. The opportunity cost of moving from P to R is 10 units of Y. II. The opportunity cost of moving from R to P is 8 units of X. III. The opportunity cost of moving from Q to R is 0 units. a. I only b. III only c. I & II only d. I, II, & III

SteelSteel

MissilesMissiles

XX

Page 60: Intro Powerpoint

1. Land Land [natural resourcesnatural resources] – [“gifts of nature“gifts of nature”]

.

The The FourFour Factors Factors ofof Production Production

““GiftsGifts of of NatureNature””

WaterWater WindWind

SunSun Fossil fuelsFossil fuels

Page 61: Intro Powerpoint

.

2. LaborLabor [human resourceshuman resources] anyone who works [“paid work”“paid work”]A. PhysicalPhysical – pro athletes & lumberjacksB. IntellectualIntellectual – accountants & lawyers

““Hired HelpHired Help””

Page 62: Intro Powerpoint

.

3. CapitalCapital Resources Resources – all “man-made inputs”“man-made inputs” used to produce consumer products (machinery, physical plants, & tools)(machinery, physical plants, & tools). A. Capital goodsCapital goods – goods [machinery, buildings, & tools] used to produce other goodsproduce other goods. [crane, Ford plant, hammer]

Page 63: Intro Powerpoint

4. EntrepreneurshipEntrepreneurship – Combines land, labor, & capital to Combines land, labor, & capital to produce productsproduce products.

Resource paymentsResource payments. The resource owners receive rentrent [for the use of their land; wageswages [for their labor]; interestinterest [payment for financial capital], and profitsprofits [for their entrepreneurial ability].

Rent Wages Interest ProfitsRent Wages Interest ProfitsLand Labor Capital EntrepreneurLand Labor Capital Entrepreneur

.

Page 64: Intro Powerpoint

.

Real Real CapitalCapital v.v. FinancialFinancial CapitalCapital

Notes...

INVESTMENTINVESTMENT

FINANCIALFINANCIAL CAPITAL CAPITAL[stocks, bonds, & money][stocks, bonds, & money]

REALREAL CAPITAL CAPITAL[tools, machinery, & factories]

CanCan produce something produce somethingdirectly with thesedirectly with these

Can’tCan’t produce anything produce anythingdirectly with thesedirectly with these

Page 65: Intro Powerpoint

The The Harley HogHarley Hog Circular Flow Circular Flow

Product MarketProduct Market

Resource MarketResource Market

Page 66: Intro Powerpoint

Hog Hog CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS

PRODUCT MARKETPRODUCT MARKET

Mechanic

RESOURCE MARKETRESOURCE MARKET11

22

33

44

Flow 4. Goods/servicesFlow 4. Goods/servicesFlow 3: CFlow 3: Consumer expendituresonsumer expenditures

Page 67: Intro Powerpoint

HogHog CIRCULAR FLOW CIRCULAR FLOW MODELMODEL

BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS

PRODUCT MARKETPRODUCT MARKET

Mechanic

RESOURCE MARKETRESOURCE MARKET11

22

33

44

Flow 4. Goods/servicesFlow 4. Goods/servicesFlow 3: CFlow 3: Consumer expendituresonsumer expendituresFlow 1: Flow 1: LLand,and, L Labor, abor, CCapital, apital, EEntrepreneurntrepreneur

Flow 2: Flow 2: RRent, Wages, Interest, Profitsent, Wages, Interest, Profits

Page 68: Intro Powerpoint

CIRCULAR FLOW CIRCULAR FLOW MODELMODEL

BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS

PRODUCT MARKETPRODUCT MARKET

Householders demand hogs & will pay

Mechanic

RESOURCE MARKETRESOURCE MARKET

Businesses supply hogs g/sI demand that hog & will pay.

Page 69: Intro Powerpoint

BUSINESSES HOUSEHOLDS

RESOURCEMARKET

PRODUCTPRODUCTMARKETMARKET

GOODS &GOODS &SERVICESSERVICES

GOODS &GOODS &SERVICESSERVICES

$CONSUMPTIONCONSUMPTION$ REVENUREVENUE

Resource Market

Mechanic

Businesses Show me the money!Show me the money!& you’ll get this hog.& you’ll get this hog.

CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

Householders

Page 70: Intro Powerpoint

BUSINESSES HOUSEHOLDS

RESOURCEMARKET

PRODUCTPRODUCTMARKETMARKET

GOODS &GOODS &SERVICESSERVICES

GOODS &GOODS &SERVICESSERVICES

$CONSUMPTIONCONSUMPTION$ REVENUREVENUE

Resource Market

Mechanic

HouseholdersBusinesses

I demanded this hog and had to pay for it.

Show me the money!Show me the money!& you’ll get this hog.& you’ll get this hog.

CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

Page 71: Intro Powerpoint

BUSINESSES HOUSEHOLDS

RESOURCEMARKET

PRODUCTPRODUCTMARKETMARKET

GOODS &GOODS &SERVICESSERVICES

GOODS &GOODS &SERVICESSERVICES

$CONSUMPTIONCONSUMPTION$ REVENUREVENUE

Resource Market

Mechanic

Householders

HH HH supply hog laborsupply hog labor

H.D. demands hog labor & will pay

Businesses Show me the money!Show me the money!& you’ll get this hog.& you’ll get this hog.

I demanded this hog and had to pay for it.

CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

Page 72: Intro Powerpoint

HOUSEHOLDSHOUSEHOLDS

$ COSTSCOSTS $ INCOMESINCOMES

GOODS &GOODS &SERVICESSERVICES

GOODS &GOODS &SERVICESSERVICESPRODUCT MARKETPRODUCT MARKET

ResourceResource Market Market

BUSINESSESBUSINESSES Give me Give me your your hog labor hog labor & & I’ll I’ll show you the money.show you the money.

CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

Page 73: Intro Powerpoint

HOUSEHOLDSHOUSEHOLDS

$ COSTSCOSTS $ INCOMESINCOMES

GOODS &GOODS &SERVICESSERVICES

GOODS &GOODS &SERVICESSERVICESPRODUCT MARKETPRODUCT MARKET

ResourceResource Market Market

BUSINESSESBUSINESSES

CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

I supplied hog labor & was paid..

Page 74: Intro Powerpoint

BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS

RESOURCEMARKET

RESOURCESRESOURCES INPUTSINPUTS

$ COSTS$ COSTS $ INCOMES$ INCOMES

PRODUCTMARKET

GOODS &GOODS &SERVICESSERVICES

GOODS &GOODS &SERVICESSERVICES

$ CONSUMPTION$ CONSUMPTION$ REVENUE$ REVENUE

CIRCULAR FLOW MODELCIRCULAR FLOW MODEL

Page 75: Intro Powerpoint

The Circular-Flow DiagramThe Circular-Flow Diagram

BusinessesBusinesses

Product MarketProduct Market

Resource MarketResource Market

HouseholdsHouseholds

1122

33

44

LaborLabor

BusinessesBusinessesBusinesses

What flow are the following?What flow are the following?A. Consumer expenditures?A. Consumer expenditures?B. Goods and services?B. Goods and services?C. Land, labor, capital, C. Land, labor, capital, and entrepreneurs?and entrepreneurs?D. Rent, wages, interest, D. Rent, wages, interest, and profits?and profits?

221144

33

Page 76: Intro Powerpoint

The Circular-Flow DiagramThe Circular-Flow Diagram

HouseholdsHouseholds

Product MarketProduct Market

Resource MarketResource Market

2

3

4

What flow are the following?What flow are the following?A. Goods/services?A. Goods/services?B. Consumer expenditures?B. Consumer expenditures?C. Land, labor, capital andC. Land, labor, capital and entrepreneurial ability?entrepreneurial ability?D.D. Rent, wages, interest, Rent, wages, interest, and profits?and profits? BusinessesBusinesses

1

BusinessesBusinessesBusinesses443311

22

Page 77: Intro Powerpoint

NS 56-59NS 56-59

56. In the product marketproduct market (householders/businesses) are the demandersdemanders and (householders/businesses) are the supplierssuppliers.57. In the resource marketresource market (householders/businesses) are the demandersdemanders and (householders/businesses) are the supplierssuppliers.58. In the resource marketresource market, (householders/businesses) sell resourcessell resources to (householders/businesses).59. In the product marketproduct market, (householders/businesses) sellsell productsproducts [goods/services] to (householders/businesses).

Fuzzy WuzzyFuzzy Wuzzy

Page 78: Intro Powerpoint

And finally – the real opportunity cost of a bad education And finally – the real opportunity cost of a bad education is that you have to drive a Communist Caris that you have to drive a Communist Car. .

Which would begin to rust while still in the show room,

Would shake when it hit 35 mph,

Would break in half going over RR tracks,

And would never be stolen even if you left thekeys in it with the motor running.

YUGOYUGOOnly way to get up a hillOnly way to get up a hill

Page 79: Intro Powerpoint

The The YugoYugo on the inside or under the hood on the inside or under the hood

Anytime you filled the Yugo with gas, you doubled its value. Putting seats in tripled its value.]

Page 80: Intro Powerpoint

The EndThe End