McConnellMicro13_Ch01.ppt

PART 1: AN INTRODUCTION TO ECONOMICS AND THE ECONOMY ©2013 McGraw-Hill Ryerson Ltd. * 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 * 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 * Interaction Among Individuals Specialization and Trade The Effectiveness of Markets The Role of Governments ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO1 * 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 * Scarcity and Choice Purposeful Behaviour Marginal Analysis: Benefits and Costs ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO2 * 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 * Deriving Theories Terminology Generalizations Other-Things-Equal Assumption Graphical Expression ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO3 * 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 * 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 * Economic problem Limited Income Unlimited Wants ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO5 * ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO5 * 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 1-* 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 * 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 1-* ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO5 * LO4 1-* 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 * Illustrates production choices Assumptions: Full employment Fixed resources Fixed technology Two goods ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO6 * 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… 1-* ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO6 * LO5 The law of increasing opportunity costs makes the PPC concave. 1-* Pizzas Industrial Robots Attainable 0 1 2 3 4 5 6 7 8 9 14 13 12 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 * LO5 a b c d e MB = MC MC MB 15 10 5 0 1 2 3 Quantity of Pizza Marginal Benefit & Marginal Cost 1-* ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO6 * Economic Growth More resources Improved resource quality Technological advances ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO7 * 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. 1-* Pizzas Industrial Robots 0 1 2 3 4 5 6 7 8 9 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A B C D E U ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO7 * 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 1-* ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO7 * 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’ 1-* ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO7 * 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 1-* ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO7 * Specialization Increased production possibilities ©2013 McGraw-Hill Ryerson Ltd. Chapter 1, LO7 * Biases Loaded terminology Fallacy of composition Post hoc fallacy Correlation not causation ©2013 McGraw-Hill Ryerson Ltd. Chapter 1 * 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 *