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Economics

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Economics Introduction to Basic Concepts – PowerPoint PPT presentation

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Title: Economics


1
Economics
  • Introduction to Basic Concepts

2
Economic perspective
  • An unique way of thinking about economic
    issues
  • Scarcity and Choice
  • Rational Behavior
  • Marginal Thinking Costs and Benefits
  • One unit at a time

3
Why Study Economics?
  • Economics for Citizenship
  • Professional and Personal Application

4
Principles Are Derived At Two Levels
  • Macroeconomics economy as a whole and its basic
    subdivisions such as government, business and
    households. Macro looks at totals or aggregates
    to examine the big picture.
  • Microeconomics looks at specific units or
    segments of the economy, a particular
  • firm or household. Micro looks at the trees not
    the forest.

5
Economic Views
  • POSITIVE economics collects and presents facts.
    It avoids value judgmentsjust the facts,
    madam!
  • Positive economics concerns WHAT IS what the
    economy is really like.

6
Economic Views cont.
  • NORMATIVE economics involves value judgments
    about what the economy should be
  • like or which policies are best.
  • Normative economics embodies subjective feelings
    about WHAT OUGHT TO BE examining the
    desirability of certain conditions or aspects of
  • the economy.

7
Scarcity
  • Unlimited wants v. Limited resources
  • Considered the basic economic problem.
  • Examples
  • Time study v. soccer game
  • Money vacation v. addition to home
  • Shortage v. Scarcity

8
Trade-Offs Opportunity Cost
  • Choices lead to costs
  • Trade-offs choosing between alternative
    uses of a resource.
  • Opportunity cost loss of the next best
    alternative use for a resource.
  • Production Possibility Curve a graphical
    illustration of opportunity cost.

9
PPCs
  • Economic model of Trade-offs and Opportunity
    Costs
  • 4 basic assumptions
  • Efficiency full employment and
  • productive efficiency
  • Fixed resources
  • Fixed Technology
  • Two products

10
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11
PPCs cont.
12
PPC for Pizza and Industrial Robots
13
The PPC
14
Optimal Output MB MC
15
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16
Present choices Future outcomes
17
Strategies to expand the production possibilities
frontier
  • Discover new land resources
  • Increase population and/or loosen immigration
    policy
  • Education training
  • Increase productivity/technology

18
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19
PPC
  • Practice problems 3 and 4 in your packet.

20
Absolute and Comparative Advantage
21
Determining Comparative Advantage
  • Two methods
  • Output same amount of resources,
  • different output
  • Input differing amount of resource,
  • same output

22
How do we calculate the advantage?
  • Input Method Item Produced
  • O U I Opportunity Cost
  • Output Method Opportunity Cost
  • O O O Item Produced

23
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24
Comparative Advantage Applications
  • Directions Answer the following questions for
    each problem.
  • Does the Output vary or does the Input vary in
    this problem?
  • Who has the absolute advantage for each product?
  • Who has the Comparative advantage for the first
    product?
  • Who has the comparative advantage for the second
    product?
  • Within what range will the terms of trade be?

25
Comparative Advantage Problems
  • Joy gives two haircuts or one perm in an hour.
    Susie gives three haircuts and two perms in an
    hour.
  • B. Ana takes 30 min. to wash dishes or one hour
    to sweep the house. Joe takes 15 min. for dishes
    or 45 min. to sweep.

26
Comparative Advantage Problems
  • C. George fixes sixteen flats or eight breaks per
    day. Amy fixes fourteen flats or eight breaks per
    day.
  • D. Texans require 10 hours of labor per unit of
    beef produced and 30 hours of labor per unit of
    cotton produced. Virginians require 15 hour of
    labor per unit of beef and 40 hours of labor per
    unit of cotton.

27
Circular Flow Model
28
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