Did you know?
• As you watch the video, make a mental
note of one of the facts. How does it effect
the economy? We will discuss this!
• Did you know?
Real Life Economics
• 5 minutes
• Play as many games of Rock-PaperScissors
– Winner earns candy of choice
– Winners continue playing into you have the
desired candy (or none at all)
• Why did we do this?
Introductions
• Interview your partner
– Name
– Best thing about being a senior
– Post high school plans
– Preferred superpower—Fly OR Be invisible
• Return to Your Seat
• Introduce Your Partner to the Class
01
Limits, Alternatives, and Choices
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
What is Macroeconomics?
• Quick definition of Macroeconomics
Introduction
LO1
•
•
Economics defined:
•
A social science concerned
with making optimal choices
under conditions of scarcity.
Economic wants exceed
productive capacity.
1-6
The Economic Perspective
•
•
Thinking like an economist
Key features:
•
•
•
LO1
Scarcity and choice
Purposeful behavior
Marginal analysis
1-7
Scarcity and Choice
•
•
•
Resources are scarce
Choices must be made
Opportunity cost
•
LO1
There’s no free lunch
1-8
Purposeful Behavior
•
•
•
•
LO1
Rational self-interest
Individuals and utility
Firms and profit
Desired outcomes
1-9
Marginal Analysis
•
•
•
•
LO1
Marginal benefit
Marginal cost
Marginal means “extra”
Comparison between marginal
benefit and marginal cost
1-10
Theories, Principles, and Models
•
The scientific method:
Observe
Formulate a hypothesis
Test the hypothesis
Accept, reject, or modify the hypothesis
Continue to test the hypothesis, if necessary
•
LO2
Economic principles
•
•
Generalizations
•
Graphical expression
Other-things-equal assumption –
ceteris paribus
1-11
Microeconomics and Macroeconomics
•
Microeconomics
•
•
Macroeconomics
•
LO3
Decision making by individual
units
Aggregate
1-12
Positive and Normative Economics
•
Positive economics- Deals
with economic facts
•
•
Normative economics - A
subjective perspective of the
economy
•
LO3
The rising price of crude oil on world
markets will lead to an increase in cycling
to work
Unemployment is more harmful than
inflation
1-13
Society’s Economizing Problem
•
Scarce resources
•
•
•
•
LO4
Land
Labor
Capital
Entrepreneurial Ability
1-14
Society’s Economizing Problem
• Entrepreneurial ability
• Takes initiative
• Makes decisions
• Innovates
• Takes risk
• Entrepreneurs
LO4
1-15
Production Possibilities Model
Illustrates production choices
• Assumptions:
• Full employment
• Fixed resources
• Fixed technology
• Two goods
• PPC video
LO5
1-16
Production Possibilities Table
Production Alternatives
Type of Product
Pizzas
A
B
C
D
E
0
1
2
3
4
10
9
7
4
0
(in hundred thousands)
Industrial Robots
(in thousands)
Plot the Points to Create the Graph…
LO5
1-17
Industrial Robots
Production Possibilities Curve
14
13
12
11
10
9
8
7
6
5
4
3
2
1
A
B
Unattainable
C
U
D
The law of
increasing
opportunity
costs makes
the PPC
concave.
Attainable
E
0 1 2 3 4 5 6 7 8 9
Pizzas
LO5
1-18
Marginal Benefit & Marginal Cost
Optimal Allocation
MC
15
a
c
MB = MC
e
10
5
b
d
MB
0
1
LO5
2
Quantity of Pizza
3
1-19
A Growing Economy
•
Causes of Economic Growth
• More resources
• Improved resource quality
• Technological advances
• International trade – it leads
to specialization
LO6
1-20
A Growing Economy
Production Alternatives
Type of Product
Pizzas
A'
B'
C'
D'
E'
0
2
4
6
8
14
12
9
5
0
(in hundred thousands)
Industrial Robots
(in thousands)
LO6
1-21
Industrial Robots
A Growing Economy
A’
14
13
12
11
10
9
8
7
6
5
4
3
2
1
B’
Unattainable
A
Economic
Growth
C’
B
C
D’
D
Now Attainable
Attainable
E’
E
0
1
2
3
4
5
6
7
8 9
Pizzas
LO6
1-22
Future
Curve
Current
Curve
P
Goods for the Present
Presentville
LO6
Goods for the Future
Goods for the Future
Present Choices, Future Possibilities
Future
Curve
F
Current
Curve
Goods for the Present
Futureville
1-23