introduction: economic issues production possibilities
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Introduction: Economic Issues Production Possibilities. The Economic Problem. Economic problems production and consumption scarcity: the central economic problem Macroeconomic issues growth unemployment inflation balance of trade deficits cyclical fluctuations. The Economic Problem. - PowerPoint PPT PresentationTRANSCRIPT
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Introduction:Economic Issues
Production Possibilities
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The Economic Problem
• Economic problems– production and consumption– scarcity: the central economic problem
• Macroeconomic issues– growth– unemployment– inflation– balance of trade deficits– cyclical fluctuations
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The Economic Problem
• Microeconomic issues– choices:
• what• how• for whom
– the concept of opportunity cost– rational decision making
• weighing up marginal costs and marginal benefits
– the social implications of choice
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The Economic Problem
• The production possibility curve– what the curve shows
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0
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m
A production possibility curve
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
a 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m
aA production possibility curve
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
8m 0.0b 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m
b
A production possibility curve
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
8m 0.0 7m 2.2mc 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m
c
A production possibility curve
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0
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m
A production possibility curve
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
A production possibility curve
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0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
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f foo
d (m
illio
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x
A production possibility curve
w
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The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
![Page 13: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/13.jpg)
The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost
![Page 14: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/14.jpg)
The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost• increasing opportunity cost
![Page 15: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/15.jpg)
Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Increasing opportunity costs
x
y
0
1
2
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5
6
7
8
0 1 2 3 4 5 6 7 8
1
1
z1
2
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The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost• increasing opportunity cost
– macroeconomics and the p.p. curve:
![Page 17: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/17.jpg)
The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost• increasing opportunity cost
– macroeconomics and the p.p. curve:• production within the curve
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v
x
y
O
Making a fuller use of resourcesFo
od
Clothing
Production insidethe production
possibility curve
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The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost• increasing opportunity cost
– macroeconomics and the p.p. curve:• production within the curve• shifts in the curve
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O
Growth in potential outputFo
od
Clothing
Now
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O
Food
Clothing
Now
Growth in potential output
5 years’ time
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O
Food
Clothing
Growth in potential and actual output
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O
Food
Clothing
Growth in potential and actual output
xy
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The Economic Problem
• The circular flow of income– firms and households
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The circular flow of goods and incomes
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The Economic Problem
• The circular flow of income– firms and households– goods markets
• real flows: goods and services
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The circular flow of goods and incomes
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The circular flow of goods and incomesGoods and services
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The Economic Problem
• The circular flow of income– firms and households– goods markets
• real flows: goods and services• money flows: consumer expenditure
![Page 30: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/30.jpg)
The circular flow of goods and incomesGoods and services
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Goods and services
£Consumer
expenditure
The circular flow of goods and incomes
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The Economic Problem
• The circular flow of income– firms and households– goods markets
• real flows: goods and services• money flows: consumer expenditure
– factor markets
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The Economic Problem
• The circular flow of income– firms and households– goods markets
• real flows: goods and services• money flows: consumer expenditure
– factor markets• real flows: services of labour and other factors
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Goods and services
£Consumer
expenditure
The circular flow of goods and incomes
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Goods and services
£Consumer
expenditure
Services of factors of production (labour, etc)
The circular flow of goods and incomes
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The Economic Problem
• The circular flow of income– firms and households– goods markets
• real flows: goods and services• money flows: consumer expenditure
– factor markets• real flows: services of labour and other factors• money flows: wages and other incomes
![Page 37: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/37.jpg)
Goods and services
£Consumer
expenditure
Services of factors of production (labour, etc)
The circular flow of goods and incomes
![Page 38: Introduction: Economic Issues Production Possibilities](https://reader036.vdocument.in/reader036/viewer/2022062810/56815b56550346895dc9388c/html5/thumbnails/38.jpg)
Goods and services
£Consumer
expenditure
Wages, rentdividends, etc.
£
Services of factors of production (labour, etc)
The circular flow of goods and incomes
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The Economic Problem
• The circular flow of income (cont.)– macroeconomic issues
• the size of total flows
– microeconomic issues• individual markets• choices within goods and factor markets