Introduction to Economics The study of economics explains

Introduction to Economics

� The study of economics explains how productive resources are used to provide the goods and services that satisfy human wants and needs. � Scarcity is the fundamental economic problem facing all societies. We have limited resources and unlimited needs and wants.

Scarce Resources � Human � Natural � Capital

Needs v. Wants � Needs: Food Shelter Clothing

Goods v. Services

Factors of Production: � Land (natural resources) � Labor (human resources) � Capital (equipment, machinery) � Entrepreneurship

Basic economic questions: � What goods and services will be produced? � How will goods and services be produced? � Who will consume the goods and services? (How should it be shared? )

The study of economics… � Economics is considered a social science. Why? � What do economists do? is the difference between microeconomics and macroeconomics?

Microeconomics and Macroeconomics • • LO 3 Microeconomics • Decision making by individual units Macroeconomics • Examines either the economy as a whole or its basic subdivisions or aggregates 1 -9

Positive and Normative Economics • Positive economics • • Normative economics • LO 3 Deals with economic facts A subjective perspective of the economy 1 -10

Theories, Principles, and Models • The scientific method Observe Formulate a hypothesis Test the hypothesis Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary • LO 2 Economic principles • Generalizations • Other-things-equal assumption • Graphical expression 1 -11

Factors influencing economic development… � Technology � Specialization � Division of Labor

Other important concepts: � Trade-off � Opportunity Cost � Production Possibilities Curve (PPC)

Production Possibilities Model 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) Plot the Points to Create the Graph… LO 5 1 -14

Industrial Robots Production Possibilities Model 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A B C U Unattainable D The law of increasing opportunity costs makes the PPC concave. Attainable E 0 1 2 3 4 5 6 7 8 9 Pizzas LO 5 1 -15

Industrial Robots A Growing Economy 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A’ B’ Unattainable A B C’ C Economic Growth D’ D Now Attainable E’ E 0 1 2 3 4 5 6 7 8 9 Pizzas LO 6 1 -16

Present Choices, Future Possibilities LO 6 Future Curve Current Curve P Goods for the Future Compare Two Hypothetical Economies F Future Curve Current Curve Goods for the Presentville Futureville 1 -17