Chapter Objectives Economic Perspective Theories Principles and Models

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show 1 -1 1 Limits, Alternatives, and Choices Copyright 2008 The Mc. Graw-Hill Companies

Chapter Objectives • Economics Defined Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word – Economic Perspective • Role of Economic Theory • Microeconomics and Macroeconomics • Scarce Resources – The Economizing Problem • Production Possibilities Key Terms End Show 1 -2 Copyright 2008 The Mc. Graw-Hill Companies O 1. 1

The Economic Perspective Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show 1 -3 • Scarcity and Choice –Opportunity Cost • Purposeful Behavior –Utility • Marginal Analysis –Marginal Benefits –Marginal Costs Copyright 2008 The Mc. Graw-Hill Companies O 1. 2 O 1. 3

Theories Principles and Models Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms • The Scientific Method • Economic Principle –Generalizations –Other-Things-Equal Assumption (ceteris paribus) –Graphical Expression O 1. 4 End Show 1 -4 Copyright 2008 The Mc. Graw-Hill Companies

Macro and Microeconomics Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms • Macroeconomics –Aggregate • Microeconomics –Individual Units • Positive Economics • Normative Economics End Show 1 -5 Copyright 2008 The Mc. Graw-Hill Companies

Individual’s Economizing Problem Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show • • Limited Income Unlimited Wants A Budget Line Attainable and Unattainable Combinations • Tradeoffs & Opportunity Costs • Choice • Income Change O 1. 5 W 1. 1 1 -6 Copyright 2008 The Mc. Graw-Hill Companies

Individual’s Economizing Problem GLOBAL PERSPECTIVE Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Average Income, Selected Nations Country Switzerland United States Japan France South Korea Mexico Brazil China Pakistan Nigeria Rwanda Liberia Per Capita Income 2004 $48, 230 41, 400 37, 180 30, 090 13, 980 6, 770 3, 090 1, 290 600 390 220 110 Source: World Bank 1 -7 Copyright 2008 The Mc. Graw-Hill Companies

Individual’s Economizing Problem Key Terms $120 Budget DVDs Books $20 $10 6 5 4 3 2 1 0 0 2 4 6 8 10 12 12 10 Income = $120 Quantity of DVDs Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word End Show 1 -8 Copyright 2008 The Mc. Graw-Hill Companies 8 Unattainable 6 Income = $120 4 2 0 =6 Pdvd = $20 Pb = $10 = 12 Attainable 2 4 6 8 10 Quantity of Books 12 14

Society’s Economizing Problem Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms • Scarce Resources • Resource Categories –Land –Labor –Capital • Investment –Entrepreneurial Ability • Factors of Production End Show 1 -9 Copyright 2008 The Mc. Graw-Hill Companies

Production Possibilities Model Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show 1 -10 • Full Employment • Fixed Resources • Fixed Technology • Two Goods –Consumer Goods (Pizzas) –Capital Goods (Industrial Robots) Copyright 2008 The Mc. Graw-Hill Companies

Production Possibilities Model Production Possibilities Table Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Production Alternatives Type of Product Pizzas A B C D E 0 1 2 3 4 10 9 7 4 0 (in hundred thousands) Industrial Robots (in thousands) Key Terms Plot Points to Create Graph… End Show 1 -11 Copyright 2008 The Mc. Graw-Hill Companies

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms Industrial Robots Production Possibilities Model Production Possibilities Curve A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’ Unattainable A B Economic Growth C’ C D’ D Now Attainable E’ E 0 1 2 3 4 5 6 7 Pizzas End Show 1 -12 G 1. 1 Copyright 2008 The Mc. Graw-Hill Companies 8 9

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms Industrial Robots Production Possibilities Model Production Possibilities Curve A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’ Unattainable A B Law of Increasing Opportunity Cost C’ C D’ Attainable E’ E 0 1 2 3 4 5 6 7 Pizzas End Show 1 -13 Shape of the Curve D Copyright 2008 The Mc. Graw-Hill Companies 8 9 W 1. 2

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms Industrial Robots Production Possibilities Model Production Possibilities Curve A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’ Unattainable C’ U D’ Under or Unemployment E’ 0 1 2 3 4 5 6 7 Pizzas End Show 1 -14 Copyright 2008 The Mc. Graw-Hill Companies 8 9

Production Possibilities Model Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Marginal Benefit & Marginal Cost Optimal Allocation of Resources 15 e 10 5 End Show 1 -15 c MC MB = MC 0 Key Terms a Copyright 2008 The Mc. Graw-Hill Companies b 1 d 2 3 Quantity of Pizza MB

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show 1 -16 Unemployment Growth and the Future • A Growing Economy • Economic Growth –Increasing Resource Supplies –Increasing Resource Quality –Technological Advances Copyright 2008 The Mc. Graw-Hill Companies

Present Choices & Future Possibilities G 1. 2 Key Terms Future Curve Current Curve P Goods for the Presentville Goods for the Future Compare Two Hypothetical Economies Goods for the Future Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Future Curve F Current Curve Goods for the Present Futureville Implications of International Trade End Show 1 -17 Copyright 2008 The Mc. Graw-Hill Companies

Pitfalls to Sound Economic t Reasoning s a L Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show 1 -18 rd o W • Biases • Loaded Terminology • Fallacy of Composition • Post Hoc Fallacy • Correlation but not Causation Copyright 2008 The Mc. Graw-Hill Companies

Key Terms Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms • • • • economics economic perspective opportunity cost utility marginal analysis scientific method economic principle other-things-equal assumption macroeconomics aggregate microeconomics positive economics normative economics economizing problem budget line End Show 1 -19 Copyright 2008 The Mc. Graw-Hill Companies • • • economic resources land labor capital investment entrepreneurial ability factors of production consumer goods capital goods production possibilities curve • law of increasing opportunity costs • economic growth

Next Chapter Preview… Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word The Market System and the Circular Flow Key Terms End Show 1 -20 Copyright 2008 The Mc. Graw-Hill Companies