S&N, Ch.

1,2
Mw, Ch. 1-3
Books
What is Economics?
The Economic Problem
Unlimited Wants
Scarce Resources
– Land, Labour,
Capital
Resource Use
Choices
The Economic Problem
What goods and services should an economy
produce? – should the emphasis be on
agriculture, manufacturing or services, should it
be on sport and leisure or housing?
How should goods and services be
produced? – labour intensive, land intensive,
capital intensive? Efficiency?
Who should get the goods and services
produced? – even distribution? more for the rich?
for those who work hard?
Micro - vs. Macro -
Economics

Microeconomics
Micro- vs. Macro-
Economics

Macroeconomics
Positive vs. Normative
economics
 Positive and Normative
Economics
 Health care can be
improved with more tax
funding
 Pollution control is effective
through a system of fines
 Society ought to provide
homes for all
 Any strategy aimed at
reducing factory closures in
deprived areas would be
helpful
Positive Statements:
 Capable of being verified
or refuted by resorting
to fact or further
investigation
Normative Statements:
 Contains a value
judgement which cannot
be verified by resort to
investigation or research
Capitalism
Capitalism
Socialism Socialism
Why economists may
disagree
Production-Possibility
Frontier, PPF
The PPF is a curve
depicting all
maximum output It shows the
possibilities for two various
or more goods combinations of
given a set of two goods that a
inputs (resources, country can
labor, etc.). The produce when all
PPF assumes that of its resources
all inputs are used are fully employed
efficiently. and used in their
most efficient
manner.
PPF – constant costs
PPF – constant costs
A is possible but inefficient
300

B is possible and efficient

C is impossible
•
C

•
B
• A

0 100
Production of machines

3030
 PPF – increasing costs
(decreasing returns to scale)
A is possible but inefficient
300

• B is possible and efficient

C C is impossible

•
B

• A

0 Production of machines 100

3030
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