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Introduction: Economic Issues Production Possibilities

This text delves into the fundamental economic issues surrounding production, consumption, and the constraints posed by scarcity. It explores the production possibility curve (PPC), which illustrates the trade-offs between different goods, such as food and clothing. Key concepts include macroeconomic issues like growth, unemployment, and inflation, as well as microeconomic principles focusing on choices, opportunity cost, and rational decision-making. The analysis emphasizes the social implications of economic choices and the importance of understanding both marginal costs and benefits.

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Introduction: Economic Issues Production Possibilities

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  1. Introduction: Economic Issues Production Possibilities

  2. The Economic Problem • Economic problems • production and consumption • scarcity: the central economic problem • Macroeconomic issues • growth • unemployment • inflation • balance of trade deficits • cyclical fluctuations

  3. The Economic Problem • Microeconomic issues • choices: • what • how • for whom • the concept of opportunity cost • rational decision making • weighing up marginal costs and marginal benefits • the social implications of choice

  4. The Economic Problem • The production possibility curve • what the curve shows

  5. Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m A production possibility curve Units of food (millions) Units of clothing (millions)

  6. A production possibility curve a Units of food Units of clothing (millions) (millions) a 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

  7. A production possibility curve b Units of food Units of clothing (millions) (millions) 8m 0.0 b 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

  8. A production possibility curve c Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m c 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

  9. A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

  10. A production possibility curve Units of food (millions) Units of clothing (millions)

  11. w A production possibility curve x Units of food (millions) Units of clothing (millions)

  12. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve:

  13. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost

  14. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost

  15. 1 1 2 1 Increasing opportunity costs x y Units of food (millions) z Units of clothing (millions)

  16. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost • macroeconomics and the p.p. curve:

  17. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost • macroeconomics and the p.p. curve: • production within the curve

  18. Making a fuller use of resources x Production inside the production possibility curve y v Food O Clothing

  19. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost • macroeconomics and the p.p. curve: • production within the curve • shifts in the curve

  20. Growth in potential output Now Food O Clothing

  21. Growth in potential output 5 years’ time Food Now O Clothing

  22. Growth in potential and actual output Food O Clothing

  23. Growth in potential and actual output y x Food O Clothing

  24. The Economic Problem • The circular flow of income • firms and households

  25. The circular flow of goods and incomes

  26. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services

  27. The circular flow of goods and incomes

  28. The circular flow of goods and incomes Goods and services

  29. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure

  30. The circular flow of goods and incomes Goods and services

  31. The circular flow of goods and incomes Goods and services £ Consumer expenditure

  32. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure • factor markets

  33. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure • factor markets • real flows: services of labour and other factors

  34. The circular flow of goods and incomes Goods and services £ Consumer expenditure

  35. The circular flow of goods and incomes Goods and services £ Consumer expenditure Services of factors of production (labour, etc)

  36. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure • factor markets • real flows: services of labour and other factors • money flows: wages and other incomes

  37. The circular flow of goods and incomes Goods and services £ Consumer expenditure Services of factors of production (labour, etc)

  38. The circular flow of goods and incomes Goods and services £ Consumer expenditure Wages, rent dividends, etc. £ Services of factors of production (labour, etc)

  39. The Economic Problem • The circular flow of income (cont.) • macroeconomic issues • the size of total flows • microeconomic issues • individual markets • choices within goods and factor markets

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