Transcript
PART 1: AN INTRODUCTION
TO ECONOMICS
AND THE ECONOMY
©2013 McGraw-Hill Ryerson Ltd.
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Prepared by Dr. Amy Peng
Ryerson University
The Ten Key Concepts to retain for a lifetime
The features of the economic way of thinking
The role of economic theory in economics
The distinction between microeconomics and macroeconomics
The nature of the economic problem and the categories of scarce resources
About production possibilities analysis and increasing opportunity costs
What economic growth is, and how present choices determine future production possibilities
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1
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The Individual
Facing trade-offs
Opportunity Costs
Choosing a Little More or Less
The Influence of Incentives
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO1
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Interaction Among Individuals
Specialization and Trade
The Effectiveness of Markets
The Role of Governments
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO1
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The Economy as a Whole and the Standard of Living
Production and the Standard of Living
Money and Inflation
Inflation-Unemployment Trade-off
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO1
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Scarcity and Choice
Purposeful Behaviour
Marginal Analysis: Benefits and Costs
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO2
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The scientific method:
Observe the world
Formulate hypotheses
Test by comparing actual outcomes to the hypothesized predictions
Accept, reject, modify hypotheses as indicated
Continue testing against the facts
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO3
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Deriving Theories
Terminology
Generalizations
Other-Things-Equal Assumption
Graphical Expression
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO3
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Microeconomics examines
Individual units (household, firm or industry) and their decision making process
Macroeconomics examines
The whole economy
The subdivisions or aggregates
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO4
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Positive economics
The analysis of facts to establish cause-and-effect relationships.
Normative economics
The part of economics involving value judgments about what the economy should be like.
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO4
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Economic problem
Limited Income
Unlimited Wants
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO5
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO5
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Country Per Capita Income, 2010
(U.S. dollars, based on exchange rates)
Switzerland 70,350
United States 47,140
Canada 41,950
France 42,390
Japan 42,150
South Korea 19,890
Brazil 9,390
Mexico 9,330
China 7,560
Pakistan 2,780
Nigeria 2,160
Rwanda 1,180
Liberia 330
LO4
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A budget line
Attainable and unattainable options
Tradeoffs and opportunity costs
Make the best choice possible
Change in income
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO5
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LO4
6
5
4
3
2
1
0
0
2
4
6
8
10
12
DVDs
$20
Books
$10
$120 Budget
12
10
8
6
4
2
0
2 4 6 8 10 12 14
Quantity of Paperback Books
Quantity of DVDs
Income = $120
Pdvd = $20
= 6
Income = $120
Pb = $10
= 12
Attainable
Unattainable
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO5
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LO4
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Scarce Resources
Land
Capital
Human Resources
Labour
Entrepreneurial Ability
takes initiative
makes policy decisions
innovates
bears risk
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO5
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Illustrates production choices
Assumptions:
Full employment
Fixed resources
Fixed technology
Two goods
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO6
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LO5
Type of Product
Pizzas
(in hundred thousands)
Industrial Robots
(in thousands)
Production Alternatives
A
B
C
D
E
10
9
7
4
0
0
1
2
3
4
Plot the Points to Create the Graph…
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO6
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LO5
The law of
increasing
opportunity costs makes
the PPC concave.
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Pizzas
Industrial Robots
Attainable
0 1 2 3 4 5 6 7 8 9
14
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11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
C
D
E
U
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO6
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LO5
a
b
c
d
e
MB = MC
MC
MB
15
10
5
0
1 2 3
Quantity of Pizza
Marginal Benefit & Marginal Cost
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO6
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Economic Growth
More resources
Improved resource quality
Technological advances
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO7
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LO5
U, represents unemployment or a
failure to achieve productive
efficiency. The arrows indicate that, by realizing full employment and
productive efficiency, the economy could operate on the curve.
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Pizzas
Industrial Robots
0 1 2 3 4 5 6 7 8 9
14
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11
10
9
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5
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3
2
1
A
B
C
D
E
U
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO7
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Type of Product
Pizzas
(in hundred thousands)
Industrial Robots
(in thousands)
Production Alternatives
A'
B'
C'
D'
E'
14
12
9
5
0
0
2
4
6
8
LO6
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO7
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LO6
Pizzas
Industrial Robots
Attainable
0 1 2 3 4 5 6 7 8
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
C
D
E
Economic
Growth
Now Attainable
A’
B’
C’
D’
E’
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO7
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LO6
Goods for the Present
Goods for the Future
Goods for the Future
Goods for the Present
P
F
Current
Curve
Current
Curve
Future
Curve
Future
Curve
Presentville
Futureville
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©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO7
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Specialization
Increased production possibilities
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1, LO7
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Biases
Loaded terminology
Fallacy of composition
Post hoc fallacy
Correlation not causation
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1
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1.1 Ten Key Concepts to Retain for a Lifetime
1.2 The Economic Way of Thinking
1.3 Theories, Principles and Models
1.4 Macroeconomics and Microeconomics
1.5 The Economic Problem
1.6 The Production Possibilities Model and Increasing Opportunity Costs
1.7 Economic Growth, Present Choices, and Future Possibilities
©2013 McGraw-Hill Ryerson Ltd.
Chapter 1
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