mbf ge econ ppt ch01
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microeconomics slidesTRANSCRIPT
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1Limits, Alternatives, and ChoicesMcGraw-Hill/IrwinCopyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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IntroductionEconomics definedEconomic wants exceed productive capacityA social science concerned with making optimal choices under conditions of scarcityLO1
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The Economic Perspective
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Scarcity and ChoicePurposeful BehaviorMarginal Analysis Resources are scarceRational self-interestMarginal benefitChoices must be made Individuals and utilityMarginal costOpportunity cost Firms and profitMarginal means extra Theres no free lunch Desired outcomesMB and MC
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Theories, Principles, and ModelsThe scientific methodEconomic principlesGeneralizationsOther-things-equal assumptionGraphical expressionObserveFormulate a hypothesisTest the hypothesisAccept, reject, or modify the hypothesisContinue to test the hypothesis, if necessaryLO2
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Microeconomics and MacroeconomicsMicroeconomicsDecision making by individual unitsMacroeconomicsExamines either the economy as a whole or its basic subdivisions or aggregatesLO3
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Positive and Normative EconomicsPositive economicsDeals with economic factsNormative economicsA subjective perspective of the economyLO3
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Individuals Economizing ProblemLimited incomeUnlimited wantsA budget lineAttainable and unattainable optionsTrade-offs and opportunity costsMake the best choice possibleChange in incomeLO4
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Individuals Economizing ProblemLO4
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Societys Economizing ProblemScarce resourcesLandLaborCapitalEntrepreneurial Ability (takes initiatives, makes decisions, innovates, and takes risks)
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Production Possibilities ModelIllustrates production choicesAssumptionsFull employmentFixed resourcesFixed technologyTwo goodsLO5
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Type of ProductPizzas (in hundred thousands)Industrial Robots (in thousands)Production AlternativesABCDE10974001234Plot the Points to Create the GraphProduction Possibilities ModelLO5
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PizzasIndustrial RobotsAttainable0 1 2 3 4 5 6 7 8 9 1413121110 9 8 7 6 5 4 3 2 1UnattainableABCDEThe law of increasing opportunity costs makes the PPC concave.Production Possibilities ModelLO5
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A Growing EconomyPizzasIndustrial RobotsAttainable0 1 2 3 4 5 6 7 8 9 1413121110 9 8 7 6 5 4 3 2 1UnattainableABCDEEconomicGrowthNow AttainableABCDELO6
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Present Choices, Future PossibilitiesGoods for the PresentGoods for the FutureGoods for the FutureGoods for the PresentPFCurrentCurveCurrentCurveFutureCurveFutureCurvePresentvilleFuturevilleCompare Two Hypothetical EconomiesLO6
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Pitfalls to Sound Economic ReasoningBiasesLoaded terminologyFallacy of compositionPost hoc fallacyCorrelation not causation
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