micro economics chapter 01

Limits, Alternatives, and Choices... Introduction • Economics defined: • Economic wants exceed productive capacity.. • Use resources efficiently to maximize fulfillment of unlimited want

Limits, Alternatives, and

Choices

Introduction

• Economics defined:

• Economic wants exceed

productive capacity

• Use resources efficiently to

maximize fulfillment of unlimited wants

The Economic Perspective

• Key features:

• Scarcity and choice

• Purposeful Behavior

• Marginal Analysis

Scarcity and Choice

• Resources are scarce

• Choices must be made

• Opportunity cost

• There’s no free lunch

Purposeful Behavior

• Rational self-interest

• Utility

• Desired outcomes

Marginal Analysis

• Compare marginal benefit and

marginal cost

• Marginal means “extra”

Theories, Principles, and Models

• Economic principles and theories

• Generalizations, so imprecise

• Ceteris Paribus:

Other-things-equal assumption

• Statements of economic

behavior supported by facts

Microeconomics and

Macroeconomics

• Microeconomics

• Decision making by individual

units

• Macroeconomics

• Aggregate, total

Positive and Normative Economics

• Positive economics

• Deals with economic facts

• Normative economics

• Subjective perspective of

economy

Society’s Economizing Problem

• Scarce resources – inputs used to

produce other goods and services

• Land – natural resources

• Labor – most workers

• Capital – manufactured inputs

• Investment – spending on production

& accumulation of capital

Society’s Economizing Problem

• Entrepreneurial ability

• Takes initiative

• Decision maker

• Innovator

• Takes risk

• Key to economic growth

Production Possibilities Model

• Shows maximum combinations of 2

goods that can be produced when the economy is efficient

• Assumptions:

• Full employment

• Fixed resources

• Fixed technology

• Two goods

Production Possibilities Table

Type of Product

Pizzas

(in hundred thousands)

Industrial Robots

(in thousands)

Production Alternatives

A B C D E

10 9 7 4 0

0 1 2 3 4

Plot Points to Create Graph…

A Growing Economy

• Economic Growth

• More resources

• Improved resource quality

• Technological advances

International Trade

• Specialization

• Increased production possibilities