In this chapter you will learn: The foundation of economics, the nature of economic efficiency, how to achieve economic growth, the two general types of economic systems society can choose to co-ordinate production & consumption decisions, what the circular flow model is.
Trang 1The Economic Problem:
Scarcity, Wants, and Choices
The Economic Problem:
Scarcity, Wants, and Choices
Chapter 2
Trang 2In this chapter you will learn
In this chapter you will learn
The foundation of economics
The nature of economic efficiency
How to achieve economic growth
The two general types of economic
systems society can choose
to co-ordinate production &
consumption decisions
What the circular flow model is
Trang 3Chapter 2 Topics Chapter 2 Topics
The Foundation of Economics
Getting the Most From Available
Trang 4The Foundation of Economics
The Foundation of Economics
Society has virtually unlimited
wants…
Trang 5The Foundation of Economics
The Foundation of Economics
Society has virtually unlimited
wants…
But resources are limited or
scarce
Trang 6UNLIMITED WANTS UNLIMITED WANTS
Goods & services provide utility
Desire for a particular good can
be satisfied, but not desire for
goods in general
Trang 7RESOURCE CATEGORIES RESOURCE CATEGORIES
Property Resources
Trang 8RESOURCE CATEGORIES RESOURCE CATEGORIES
Property Resources
Land
Trang 9RESOURCE CATEGORIES RESOURCE CATEGORIES
Property Resources
Land
Capital
Trang 10RESOURCE CATEGORIES RESOURCE CATEGORIES
REAL CAPITAL
Trang 11RESOURCE CATEGORIES RESOURCE CATEGORIES
Trang 12RESOURCE CATEGORIES RESOURCE CATEGORIES
Trang 14Resource Payments Resource Payments
Trang 15Relative Scarcity Relative Scarcity
resources are scarce or limited
in supply
ultimate constraints on
production
Trang 16Chapter 2 Topics Chapter 2 Topics
The Foundation of Economics
Getting the Most From Available
Trang 17Definition of Economics Definition of Economics
Social science concerned
with using scarce resources
to attain maximum fulfillment
of society’s unlimited wants
Doing the best with what we
have
Trang 18Getting the Most from Available
Trang 19– pizzas symbolize consumer goods
– industrial robots symbolize capital
goods
Trang 20PRODUCTION POSSIBILITIES
What if we could only produce
10,000 Robots
Trang 21PRODUCTION POSSIBILITIES
10,000 Robots
or
400,000 Pizzas using all our our resources?
What if we could only produce
Trang 22PRODUCTION POSSIBILITIES
10,000 Robots
or
400,000 Pizzas
To get some pizza, we must
give up some robots!
for example
What if we could only produce
Trang 32Production Possibilities
Production Possibilities
the production possibilities curve
(frontier) marks the boundary between
attainable & unattainable production
levels
points on the curve are attainable &
efficient
points above the curve are unattainable
points below the curve are attainable &
inefficient
Trang 33Production Possibilities Production Possibilities
Law of Increasing Opportunity
Costs:
opportunity cost increases with
amount produced
as we make more pizzas, the # of
robots we have to give up (per
pizza) increases
illustrated
Trang 38(in thousands) Opportunity Cost 1st Pizza Unit = 1 Robot Unit
Opportunity Cost 2nd Pizza Unit = 2 Robot Units
Opportunity Cost 3rd Pizza Unit = 3 Robot Units
Opportunity Cost 4th Pizza Unit = 4 Robot Units
the more pizzas we make, the more each one costs, in terms of robot units foregone
Trang 39Production Possibilities Production Possibilities
Law of Increasing Opportunity
Costs:
as we make more pizzas, the # of
robots we have to give up (per
pizza) increases
so production possibilities curve
gets steeper and steeper
Trang 40Production Possibilities
0 2 4 6 8 10 12
Trang 41Production Possibilities
0 2 4 6 8 10 12
Trang 42Production Possibilities
0 2 4 6 8 10 12
Trang 43Production Possibilities
0 2 4 6 8 10 12
Trang 44LAW OF INCREASING OPPORTUNITY COSTS
LAW OF INCREASING OPPORTUNITY COSTS
Means a graph of the production
possibilities curve will be
CONCAVE — bowed out from the
origin
Economic resources are not
completely adaptable to other
uses
Trang 45Production Possibilities Production Possibilities
which point on the frontier is
BEST?
need more info to decide on
allocative efficiency
Trang 46decide on allocative efficiency by
comparing Marginal (extra) Cost
(MC) to Marginal Benefit (MB)
Marginal Benefit is the extra benefit
associated with consuming one
more unit
Marginal Cost is the extra
opportunity cost of that extra unit
Allocative Efficiency Revisited
Allocative Efficiency Revisited
Trang 47Figure 2-2
0 5 10 15
Allocative Efficiency Revisited
Allocative Efficiency Revisited
MC
MB
MB > MC underallocatio
n of resources
Trang 48Figure 2-2
0 5 10 15
Allocative Efficiency Revisited
Allocative Efficiency Revisited
MC
MB
MB < MC overallocation
of resources
Trang 49Figure 2-2
0 5 10 15
Allocative Efficiency Revisited
Allocative Efficiency Revisited
MC
MB
MB=MC
Trang 50Chapter 2 Topics Chapter 2 Topics
The Foundation of Economics
Getting the Most From Available
Trang 51Production Possibilities Curve
Trang 52Production Possibilities Curve
Trang 53Production Possibilities Curve
Production Possibilities Curve
Economic Growth: a rightward
shift of the production
possibilities curve caused by
1 Increases in resource supplies
2 Advances in technology
Trang 55PRODUCTION POSSIBILITIES
Two Examples of Economic Growth
Goods for the Present
Figure 2-5
Trang 56PRODUCTION POSSIBILITIES
Two Examples of Economic Growth
FUTURE CURVE
FUTURE CURVE
Figure 2-5
Trang 57Qualification: International Trade Qualification: International Trade
an individual nation is limited by the
production possibilities curve
but NOT when there is international
specialization and trade!
– possible to consume ABOVE the
production possibilities curve
Trang 58Examples & Applications
Examples & Applications
Unemployment & Productive
Trang 59Chapter 2 Topics Chapter 2 Topics
The Foundation of Economics
Getting the Most From Available
Trang 60Economic Systems Economic Systems
resource allocation methods
differ according to:
Trang 61The Market System The Market System
private ownership of capital
prices & markets co-ordinate
Trang 62The Command System The Command System
socialism, communism
government owns most
resources
central planning
Trang 63Chapter 2 Topics Chapter 2 Topics
The Foundation of Economics
Getting the Most From Available
Trang 64Circular Flow Model Circular Flow Model
Figure 2-6
Trang 65BUSINESSES HOUSEHOLDS
Circular Flow Model Circular Flow Model
Figure 2-6
Trang 66BUSINESSES HOUSEHOLDS
RESOURCE MARKET
Circular Flow Model Circular Flow Model
Figure 2-6
Trang 67BUSINESSES HOUSEHOLDS
RESOURCE MARKET
Trang 68BUSINESSES HOUSEHOLDS
RESOURCE MARKET
Trang 69BUSINESSES HOUSEHOLDS
RESOURCE MARKET
Circular Flow Model Circular Flow Model
Figure 2-6
Trang 70Chapter 2 Topics Chapter 2 Topics
The Foundation of Economics
Getting the Most From Available