Scribd
Upload
64 views35 pages

ECON 224 Intro To Economics Ch1

ECON 224 Chapter 1 powerpoint

Uploaded by

tyler
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
64 views35 pages

ECON 224 Intro To Economics Ch1

ECON 224 Chapter 1 powerpoint

Uploaded by

tyler
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 35

Economics: The Core Issues

Chapter 1
McGraw-Hill/Irwin

Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

Three Core Choices


Three core choices confront every nation:
WHAT to produce with our limited resources
HOW to produce the goods and services we select
FOR WHOM goods and services are produced;
that is, who should get them

1-2

Answering the What Question


Our wants exceed our resources
We have to decide what we want most
We have to sacrifice less desired activities and
goods

1-3

The Economy Is Us
The economy is the aggregation of individual
production and consumption decisions
Important link between individual choices and
collective outcomes
Reflection of our priorities and whats
important to us

1-4

Factors of Production
We need resources to produce the goods and
services we want and need.
Resources are called Factors of Production:
Resource inputs used to produce goods and services
Four Types of Factors of Production:

Land
Labor
Capital
Entrepreneurship
1-5

Factors of Production
Land:
Not just ground
Includes all natural resources
e.g. oil, water, iron ore, energy, air, etc.

Labor:
Not just people or bodies
Quantity and quality of human resources
Their skills and abilities
1-6

Factors of Production
Capital: Final goods produced for use in
production of other goods and services
Includes equipment and structures, such as:

Factories
Production machinery
Fleet vehicles
Computers, phones, copiers and printers
Roads, bridges, infrastructure (water lines, electric lines,
etc.)
1-7

Factors of Production
Entrepreneurship: Assembling of resources
to produce new or improved products and
technologies
Its not just a matter of what resources you have
but also of how well you use them
Management and innovation
US managers and entrepreneurs are VERY
innovative

1-8

Scarcity: The Core Problem


What can be inferred from these resources?
Scarcity:
Lack of enough resources to satisfy all desired uses
of those resources

What does scarcity imply?

1-9

Limits to Output
Scarcity of resources limits the amount of
production that can be undertaken
Requires choices to be made

Economics: The study of how best to allocate


scarce resources among competing uses

1-10

Opportunity
Costs
Because we
make choices, there are
opportunity costs
Opportunity cost:
The next most desired goods and services foregone
to obtain the chosen good or service
What is given up to undertake a chosen activity

Associated with every decision


For example, if we choose to produce bread then
we cannot produce pizza crust with the same flour
Classic example is guns vs. butter
1-11

Production Possibilities
Production possibilities:
The alternative combinations of final goods and
services that could be produced in a given time
period with all available resources and technology

1-12

The Production Possibilities Curve


Production possibilities curve (PPC):
Describes the various output combinations that
could be produced in a given time period with
available resources and technology
Represents a menu of output choices an economy
confronts

1-13

OUTPUT OF TRUCKS

A Production Possibilities Curve

A
B

1
0

F
5

OUTPUT OF TANKS

1-14

The Production Possibilities Curve


Illustrates Two Essential Principles:
Scarce resources: There is a limit to the amount of
output that can be produced in a given time period
with available resources and technology
Opportunity costs: Additional quantities of any
particular good can be obtained only by reducing
the potential production of another good. The
opportunity costs increase as more and more
quantities are obtained. WHY?
1-15

Increasing Opportunity Costs


Resources do not transfer perfectly from the
production of one good to another
As a result, increased production of one good
or service can only be attained by sacrificing
ever-increasing quantities of others

1-16

Increasing Opportunity Costs


The shape of the curve illustrates increasing
opportunity costs
Lose some efficiency in the transfer
Resources used for truck production are not ideally
suited for producing tanks

1-17

Law of Increasing Opportunity Costs


OUTPUT OF TRUCKS

5
4

A Step 1: give up one truck


B
Step 2: get two tanks

Step 3: give up another truck

Step 4: get one more tank


2

D
E

1
0

OUTPUT OF TANKS

1-18

Production Possibilities Curve


A production possibilities curve shows
potential output
Efficiency/Efficient:
Maximum output of a good from the resources
used in production
Every point on the production possibilities curve is
a point of efficiency

1-19

Points Inside the Curve


Inefficiency/inefficient:
Any point inside the PPC is inefficient

Why would an economy be inside the PPC?


Resources not being used to maximum potential
Unemployment, factories are unused

1-20

A Point Inside the Curve


OUTPUT OF TRUCKS

2
1
0

Some resources are


unemployed or used
inefficiently

OUTPUT OF TANKS

1-21

Points Outside the Curve


Any point outside the production possibilities
curve is unattainable with available resources
and technology
Would have to obtain additional resources to
shift the PPC to that point

1-22

A Point Outside the Curve

OUTPUT OF TRUCKS

Currently not attainable

3
2
1
0

OUTPUT OF TANKS

1-23

Economic Growth
Economic growth:
An increase in output due to an expansion of
production possibilities because of an increase in
resources or better technology

The production possibilities curve shifts


outward (to the right)

1-24

Economic Growth
Land

Labor

Capital

Entrepreneurship

PPC 1

100 million
acres

150
million
people

$50 trillion

X units

PPC 2

110 million
acres

160
million
people

$55 trillion

2X units

OUTPUT OF TRUCKS

PP2
PP1

OUTPUT OF TANKS

1-25

Answering the How Question


Deals with the production process
Find an optimal method of producing goods
and services based on efficiency and cost
effectiveness, while incorporating safeguards
for the environment and social concerns
Take into consideration least cost, quality,
labor, ethics and morality, etc

1-26

Answering the For Whom Question


The for whom question focuses on how an
economys output is distributed across
members of society.
This is a distribution problem.
The economic pie can be divided in several
ways:
Distribution based on productive contributions and
ability to pay for the product and services
Distribution based on need
Some consideration of productive contributions and
need
1-27

Possible Problems With Distribution


Distribution based on need rather than work
effort may result in less work effort
There is less output to distribute
The size of the pie may get smaller
If people (businesses) cant keep enough of
their production (profits) they may quit
producing
Raising taxes vs productivity
1-28

Mechanisms of Choice
How do we decide to answer the three core
economic questions What, How and For
Whom?
Market
Central Planning
Mixed Economy

1-29

A Market Economy
How does the market work?
Adam Smith said the invisible hand of
markets determine the answers
Market mechanism:
market prices and sales signal desired outputs (or
resource allocations)
Honda van story

1-30

Laissez faire
This idea of the invisible hand and the market
mechanism supports the doctrine of laissez
faire
leave it alone / hands off or nonintervention by
government in the market mechanism

1-31

Central Planning
Government, not the market, decides:
What output will be produced
At what prices the output will be sold
Who gets the output and how much they get
Communism and socialism

1-32

Mixed Economy
An economy that uses both market AND nonmarket signals to allocate goods and resources
Most countries have mixed economies

1-33

Political Process
How do nations decide which type of
mechanism to use?
In reality and practicality, these type of general
(big picture) economic decisions are
determined through the political process at the
ballot box

1-34

Economics: The Core Issues


End of Chapter 1
McGraw-Hill/Irwin

Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

You might also like