Lecture Economics (18th edition): Chapter 1 - McConnell, Brue, Flynn''s

Chapter 1 - limits, alternatives, and choices. In this chapter, you will learn to: Define economics and the features of the economic perspective, describe the role of economic theory in economics, distinguish microeconomics from macroeconomics and positive economics from normative economics, list the categories of scarce resources and delineate the nature of the economizing problem.

Limits, Alternatives, and Choices

Chapter 1

Economics Defined

• Economic wants exceed

productive capacity

• Social science concerned with

making optimal choices under

conditions of scarcity

The Economic Perspective

• Thinking like an economist

–Scarcity and choice

–Purposeful behavior

–Marginal analysis

Scarcity and Choice

• Resources are scarce

• Choices must be made

• There is no free lunch

• Opportunity cost

Purposeful Behavior

• Rational self-interest

• Individuals and utility

• Firms and profit

• Desired outcomes

Marginal Analysis

• Marginal benefit

• Marginal cost

• Marginal means extra

• Comparison of marginal benefit

and marginal cost

Economic Models

• The scientific method

• Cause and effect

• Economic principles

• Simplification of reality

• Other-things-equal assumption

• Graphical expression

Individual’s Economizing Problem

• Limited income

• Unlimited wants

• A budget line

• Tradeoffs & opportunity costs

• Make best choice possible

• Change in income

Society’s Economizing Problem

Production Possibilities Model

• Illustrate production choices

Production Possibilities Curve

Unattainable

A B C

D

E

Economic Growth

Production Possibilities Curve

Unattainable

A B C

D

Law of Increasing Opportunity Cost

Production Possibilities Curve

0 1 2 3 4 5 6 7 8 9

14 13 12 11 10 9 8 7 6 5 4 3 2 1

The Future Economy

Future Curve

Future Curve

Presentville Futureville

Optimal Allocation of Resources

• Post hoc fallacy

• Correlation but not causation

• production possibilities curve

• law of increasing opportunity costs

• economic growth

The Market

System and the

Circular Flow