Contemporary Economics: An Applications Approach By Robert J. Carbaugh 3rd Edition

1. Contemporary Economics:An Applications ApproachBy Robert J. Carbaugh3rd Edition Chapter 1: Scarcity and Choice

2. 90 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 Scarcity and Opportunity Cost Opportunity cost and choice A Car wash possibilities B C Number of compacts D E Number of minivans Carbaugh, Chap. 1

3. 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 VCRs (millions) VCRs (millions) Opportunity Cost Production possibilities curve Attainable and unattainable production combinations Computers (mill.) Computers (mill.) Possible combinations of computers and VCRs A A Production possibilities curve (PPC) B B Production possibilities curve (PPC) F unattainable Points along PPC imply no unemployed resources and efficient production C C Foregone output E inefficient D D Carbaugh, Chap. 1

4. 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 VCRs (millions) Opportunity Cost Law of increasing opportunity cost Computers (mill.) A A bowed outward PPC illustrates increasing opportunity costs B C D Carbaugh, Chap. 1

5. 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 8 9 VCRs (millions) Changes in the PPC Economic growth & the PPC Computers (mill.) E Economic growth is illustrated by an outward shift in a nation’s PPC F G C PPC0 PPC1 Carbaugh, Chap. 1

6. Capital Goods (machinery) Capital Goods (machinery) Economic Growth Consumption trade-offs & growth Consumer goods (hamburgers) Consumer goods (hamburgers) United States Japan Next year's production possibilities Next year's production possibilities Japan's choice to favor capital goods (point A) will shift its future PPC farther out The US choice to produce more consumer goods (point A) limits future production growth A PPC0 PPC1 PPC0 A This year'sproduction possibilities PPC1 This year'sproduction possibilities Carbaugh, Chap. 1

7. Economic Growth Investment and consumption Investment and consumption as a share of Gross Domestic Product, 2001 Investment as a Consumption as a Nation percentage of GDP percentage of GDP Brazil 19% 60% Canada 20 57 China 37 47 Germany 20 59 Japan 26 56 Mexico 20 68 Russia 18 51 South Korea 27 59 Sweden 17 51 United States 16 69 Investment defined as gross fixed capital formation. Source: IMF Carbaugh, Chap. 1

8. Nonsecurity Goods Economic Growth Opportunity cost of national security Security Goods PPC1 G F E PPC0 Carbaugh, Chap. 1

9. Oil (barrels) Economic Growth Economic sanctions Iraq Machines PPC0 (before sanctions) A PPC1 (after sanctions) Carbaugh, Chap. 1

10. 5 5 4 4 3 3 2 2 1 1 0 0 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 Hours of study time per week Hours of study time per week Reading Tables & Graphs Shifting relationships Revised grading standard Initial grading standard GPA GPA K Lower grading standard J Rise = 1 I Run = 2 Higher grading standard H Carbaugh, Chap. 1

11. Economic Systems Fundamental economic questions Scarcity Answered by Imposes Type of economic system: - Market economy - Command economy - Mixed economy Fundamental economic questions: - What to produce? - How to produce? - For whom to produce? Carbaugh, Chap. 1

12. Economic Systems Market economy: circular flow model Resource markets Land, labor, capital and entrepreneurship Rent, wages, interest and profits Business firms Households Consumption expenditures Goods and services Product markets Carbaugh, Chap. 1