1 / 18

Ch. 1: The Nature & Methods of Economics

Ch. 1: The Nature & Methods of Economics. What is Economics?. The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction ( utility ) of human wants and needs . wants are unlimited, means to satisfy the wants are limited.

ranae
Télécharger la présentation

Ch. 1: The Nature & Methods of Economics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Ch. 1: The Nature & Methods of Economics

  2. What is Economics? • The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction (utility) of human wants and needs. • wants are unlimited, means to satisfy the wants are limited. *economics derives from Greek “oikonomos;” (“oikos”=house and “nomo”=managing)

  3. The Economic Perspective: Scarcity & Rational Choice 1. Resources can only be used for one purpose at a time. 2. Scarcity requires that “rational” choices be made. 3. The cost of any good/service is the value of what must be given up to obtain it; the opportunity cost (i.e.: go party? or study for a Macro quiz?) Rational Choice: 1. decisions to achieve maximum fulfillment of goals. 2. not the same as selfishness. Marginal Utility: Costs and Benefits 1. Every decision involves a tradeoff. 2. We weigh the marginal benefit against the marginal cost. 3. Costs should not exceed benefits. 4. “No free lunches” and there CAN be “too much of a good thing.”

  4. Why Study Economics? Political Economy: political issues are economic issues (i.e.: budgeting, taxation, welfare, international trade, environmental regulation). *Economics is NOT to learn “how to make money,” rather understanding human decision-making. Why do different social and cultural groups produce and consume what they do?

  5. Economic Methodology • the scientific method 2. Ceteris Paribus:“other things equal” (all other variables are held constant) 3. graphing: many economic relationships are demonstrated quantitatively

  6. Pitfalls to Objective Thinking A. Biases— preconceptions not based on facts. B. Loaded terminology— terms that contain biases and value judgments. • Causation fallacies— post hoc fallacy: 1st event not necessarily cause of 2nd correlation does not necessarily prove causation(i.e.: education & income).

  7. Macro vs. Micro A. Macroeconomics = economy as a whole 1. output, unemployment, income, aggregate expenditures, price level. B. Microeconomics = specific decision-making • Positive and Normative Economics 1. positive describes the economy 2. normative involves value judgments

  8. Graphing Review x- and y- axis? slope? positive correlation? negative correlation?

  9. Ch. 2: The Economizing Problem *the “problem”: how resources are used to satisfy wants NEEDS(for survival)VS. WANTS(provide utility, satisfaction)

  10. I. Four types of scarce resources: The factors of production: a. Land (all natural resources; fields, forests, ocean, minerals) b. Labor (human resources used in production) c. Capital (means of production; tools, equipment, factories) d. Entrepreneurship (business person; risk-taker) Resource payments: Land-Rent Labor-wages Capital-Interest Entrepreneurship-Profit

  11. II. Economic Efficiency: *efficiency requires full employment of available resources and full production. full employment: all available resources should be employed (no idle land, labor, or capital). full production: allocative efficiency & productive efficiency

  12. III. Production possibilities curves (PPC’s) *PPC curves demonstrate opportunity costs and tradeoffs. Assumptions of PPC models: 1. full efficiency 2. fixed resources 3. fixed technology 4. focus on only two products. *society must choose the one good over another.

  13. *optimal mix? • Some point on the curve • The exact point depends on society’s wants

  14. IV. Law of Increasing Opportunity Costs: • opportunity cost: the amount of one product that must be given up to produce another. 2. more of a product produced, greater (marginal) opportunity cost.

  15. V. How to Achieve Economic Growth: A. Unemployment and productive inefficiency occur when the economy is producing less than full production or inside the PP curve. B. PPC curve shifts outward due to: 1. resource supply expansion 2. technological advances C. International trade? *comparative advantage

  16. TYPES OF ECONOMIC SYSTEMS: *Economic systems differ in two important ways: Who owns the factors of production? How is economic activity organized? I. “TRADITIONAL ECONOMY”: -hunters-gatherers Examples: Eskimos, ¡Kung bushmen, Pygmies) II. “COMMAND ECONOMY”: -central planners (decides jobs, wages, what to produce) -state ownership of resources (usually communist or socialist) Examples: North Korea and Cuba III. “THE MARKET SYSTEM”: -private ownership of resources. -markets and prices coordinate and direct economic activity. ­-in pure capitalism the government plays a very limited role. --- invisible hand IV. “MIXED MARKET ECONOMY”: -government plays an important role Examples: U.S., China, Japan, Sweden, Nazi-Germany

  17. VI. Circular Flow Model:

  18. * Money flows in one direction, while goods, services, and the factors of production flow in the opposite direction. Resource/Factor markets: a. Households sell resources (labor) b. Businesses buy resources (land, labor, and capital) Product markets: a. Households buy goods and services. b. Businesses sell products (profit). c. Interaction of buyers and sellers determines price.

More Related