Basic Economic Concepts Continued Economic Principle Generalizations Otherthingsequal
Basic Economic Concepts (Continued…)
Economic Principle • Generalizations • Other-things-equal assumption • Ceteris paribus • Graphical expression LO 2 1 -2
The Economizing Problem • • • LO 4 The economizing problem Limited income and unlimited wants The budget line Attainable and unattainable combinations Trade-offs and opportunity costs 1 -3
The Consumer’s Budget Line 12 The Budget Line: Combinations of DVDs and Books Attainable with $120 Units of DVDs (Price = $20) Units of Books (Price=$10) Total Expenditure 6 0 $120 5 2 $120 4 4 $120 3 6 $120 2 8 $120 1 10 $120 0 12 $120 LO 4 10 Income = $120 Pdvd = $20 8 =6 Unattainable 6 Income = $120 4 2 0 Pb = $10 = 12 Attainable 2 4 6 8 10 12 14 1 -4
Global Perspective LO 4 1 -5
Society’s Economizing Problem • • 4 categories of economic resources Land Labor Capital • Investment • Entrepreneurial ability LO 5 1 -6
Production Possibilities Model • Economic model that shows different • • • LO 6 combinations of two goods that an economy can produce Full employment Fixed resources Fixed technology 2 -good economy Consumer goods and capital goods 1 -7
Production Possibilities Model Production Alternatives A B C D E Pizzas 0 1 2 3 4 Industrial Robots 10 9 7 4 0 Type of Product (in hundred thousands) (in thousands) Plot the points to create the graph… LO 6 1 -8
Production Possibilities Graph Industrial robots Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A Unattainable B W C D Attainable E 0 1 2 3 4 5 6 7 8 9 LO 6 Pizzas Q 1 -9
Increasing Opportunity Costs • Law of increasing opportunity costs • As more of a particular good is produced, its marginal opportunity costs increase • Production possibilities curve • Concave shape • Economic rationale LO 6 1 -10
Optimal Output Marginal benefit & marginal cost 15 a c MB = MC e 10 5 0 LO 6 MC b d MB 1 2 Quantity of pizza 3 1 -11
A Growing Economy Production Alternatives A' B' C' D' E' Pizzas 0 2 4 6 8 Industrial Robots 14 12 9 5 0 Type of Product (in hundred thousands) (in thousands) LO 7 1 -12
Unemployment, Growth, & the Future Industrial robots • Economic growth LO 7 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A’ B’ Unattainable A B C’ C D’ D Now attainable Attainable E 0 1 2 3 4 5 6 7 8 9 Pizzas E’ 1 -13
Future Curve Current curve P Goods for the present Presentville LO 7 Goods for the future Present Choices, Future Possibilities F Future Curve Current curve Goods for the present Futureville 1 -14
International Trade • Specialization • Increased production possibilities LO 7 1 -15
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