Introduction Economic Issues The Economic Problem Economic problems
Introduction: Economic Issues
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 • 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
The Economic Problem • The production possibility curve – what the curve shows
Units of food (millions) A production possibility curve Units of food Units of clothing (millions) 8 m 7 m 6 m 5 m 4 m 3 m 2 m 1 m 0 0. 0 2. 2 m 4. 0 m 5. 6 m 6. 0 m 6. 4 m 6. 7 m 7. 0 m Units of clothing (millions)
A production possibility curve Units of food (millions) a Units of food Units of clothing (millions) a 8 m 7 m 6 m 5 m 4 m 3 m 2 m 1 m 0 0. 0 2. 2 m 4. 0 m 5. 6 m 6. 0 m 6. 4 m 6. 7 m 7. 0 m Units of clothing (millions)
A production possibility curve Units of food (millions) b Units of food Units of clothing (millions) b 8 m 7 m 6 m 5 m 4 m 3 m 2 m 1 m 0 0. 0 2. 2 m 4. 0 m 5. 6 m 6. 0 m 6. 4 m 6. 7 m 7. 0 m Units of clothing (millions)
A production possibility curve Units of food (millions) c Units of food Units of clothing (millions) c 8 m 7 m 6 m 5 m 4 m 3 m 2 m 1 m 0 0. 0 2. 2 m 4. 0 m 5. 6 m 6. 0 m 6. 4 m 6. 7 m 7. 0 m Units of clothing (millions)
Units of food (millions) A production possibility curve Units of food Units of clothing (millions) 8 m 7 m 6 m 5 m 4 m 3 m 2 m 1 m 0 0. 0 2. 2 m 4. 0 m 5. 6 m 6. 0 m 6. 4 m 6. 7 m 7. 0 m Units of clothing (millions)
Units of food (millions) A production possibility curve Units of clothing (millions)
A production possibility curve Units of food (millions) x Units of clothing (millions) w
The Economic Problem • The production possibility curve – what the curve shows – microeconomics and the p. p. curve:
The Economic Problem • The production possibility curve – what the curve shows – microeconomics and the p. p. curve: • choices and opportunity cost
The Economic Problem • The production possibility curve – what the curve shows – microeconomics and the p. p. curve: • choices and opportunity cost • increasing opportunity cost
Increasing opportunity costs Units of food (millions) x 1 y 1 2 z 1 Units of clothing (millions)
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:
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
Making a fuller use of resources x Food Production inside the production possibility curve y v O Clothing
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
Food Growth in potential output Now O Clothing
Growth in potential output Food 5 years’ time Now O Clothing
Food Growth in potential and actual output O Clothing
Growth in potential and actual output y Food x O Clothing
The Economic Problem • The circular flow of income – firms and households
The circular flow of goods and incomes
The Economic Problem • The circular flow of income – firms and households – goods markets • real flows: goods and services
The circular flow of goods and incomes
The circular flow of goods and incomes Goods and services
The Economic Problem • The circular flow of income – firms and households – goods markets • real flows: goods and services • money flows: consumer expenditure
The circular flow of goods and incomes Goods and services
The circular flow of goods and incomes Goods and services £ Consumer expenditure
The Economic Problem • The circular flow of income – firms and households – goods markets • real flows: goods and services • money flows: consumer expenditure – factor markets
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
The circular flow of goods and incomes Goods and services £ Consumer expenditure
The circular flow of goods and incomes Goods and services £ Consumer expenditure Services of factors of production (labour, etc)
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
The circular flow of goods and incomes Goods and services £ Consumer expenditure Services of factors of production (labour, etc)
The circular flow of goods and incomes Goods and services £ Consumer expenditure Wages, rent dividends, etc. £ Services of factors of production (labour, etc)
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
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