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Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word
1
Limits, Alternatives, and Choices
Copyright 2008 The McGraw-Hill Companies
Chapter Objectives
Economics Defined
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word
Economic Perspective
O 1.1
Production Possibilities
Copyright 2008 The McGraw-Hill Companies
Purposeful Behavior
Utility
O 1.2
Marginal Analysis
Marginal Benefits Marginal Costs
Copyright 2008 The McGraw-Hill Companies
O 1.3
O 1.4
Macroeconomics
Aggregate
Microeconomics
Individual Units
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word
Individuals Economizing Problem Limited Income Unlimited Wants A Budget Line Attainable and Unattainable Combinations Tradeoffs & Opportunity Costs Choice Income Change
O 1.5
W 1.1
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
$120 Budget
DVDs Books $20 $10
12 10
Income = $120 Quantity of DVDs
6 5 4 3 2 1 0
0 2 4 6 8 10 12
8 6 4 2 0
Pdvd = $20
=6
Unattainable
= 12
Attainable
Quantity of Books
10
12
14
Entrepreneurial Ability
Factors of Production
Copyright 2008 The McGraw-Hill Companies
Production Alternatives
Type of Product
A 0
B 1
C 2
D 3
E 4
Pizzas
(in hundred thousands)
Industrial Robots
(in thousands)
10
14 13 12 11 10 9 8 7 6 5 4 3 2 1
0
B
A B C C
Unattainable
G 1.1
Industrial Robots
Economic Growth
D
Attainable
E 1 2 3 4 5 6 7
Now Attainable
E 8 9
Pizzas
Copyright 2008 The McGraw-Hill Companies
14 13 12 11 10 9 8 7 6 5 4 3 2 1
0
B
A B C C
Unattainable
Industrial Robots
Attainable
E 1 2 3 4 5 6 7 8 9
Pizzas
Copyright 2008 The McGraw-Hill Companies
14 13 12 11 10 9 8 7 6 5 4 3 2 1
0
Unattainable
C
Industrial Robots
U
D
Under or Unemployment
E 1 2 3 4 5 6 7 8 9
Pizzas
Copyright 2008 The McGraw-Hill Companies
15
a
MB = MC
MC
10
d
MB
2 3 Quantity of Pizza
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word
Future Curve
Future Curve
F
Current Curve
Current Curve
Biases Loaded Terminology Fallacy of Composition Post Hoc Fallacy Correlation but not Causation
Copyright 2008 The McGraw-Hill Companies
Key Terms
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word
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
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