macroeconomic mcgrowhill macroeconomic mcgrowhill macro ch 1 19e use this one

with making optimal choices under conditions of scarcity... benefit and marginal cost... Theories, Principles, and Models• The scientific method: • Economic principles • Generalizations

Limits, Alternatives, and

Choices

productive capacity

with making optimal choices under conditions of scarcity

The Economic Perspective

Scarcity and Choice

Purposeful Behavior

benefit and marginal cost

Theories, Principles, and Models

• The scientific method:

• Economic principles

• Generalizations

• Other-things-equal assumption

• Graphical expression

Observe Formulate a hypothesis Test the hypothesis

Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary

Positive and Normative Economics

Individual’s Economizing Problem

Individual’s Economizing Problem

6 5 4 3 2 1 0

0 2 4 6 8 10 12

DVDs

$20 Books $10

10 8 6 4 2

Global Perspective

Almost half the world — over three billion people

— live on less than $2.50 a day.

Society’s Economizing Problem

Society’s Economizing Problem

The Market System

• Who Will Get the Output?

• How Will the System

Accommodate Change?

• How Will the System

Promote Progress?

–Technological Advance –Creative Destruction

–Capital Accumulation

Five Fundamental Questions

The “Invisible Hand”

–The Incentive Problem

Demise of Command Systems

USSR

Yugoslavia

East Germany

Marginal Benefit = Marginal Cost

•Productive Efficiency – Producing at

lowest cost

Lowest Average Total Cost

Production Possibilities Model

Production Possibilities Table

Production Possibilities Curve

D

E

U

The law of increasing opportunity costs makes the PPC

concave

14 12 9 5 0

0 2 4 6 8

A Growing Economy

A B C

D

E

Economic Growth

Present Choices, Future

Current Curve

Future Curve

Future Curve

Presentville Futureville

International Trade

Pitfalls to Sound Economic

Reasoning