Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys

Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

1
Limits, Alternatives, and Choices
Copyright 2008 The McGraw-Hill Companies

Key Terms End Show 1-1

Chapter Objectives
Economics Defined
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Economic Perspective

O 1.1

Role of Economic Theory Microeconomics and Macroeconomics Scarce Resources

The Economizing Problem

Key Terms End Show 1-2

Production Possibilities
Copyright 2008 The McGraw-Hill Companies

The Economic Perspective

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Scarcity and Choice

Opportunity Cost

Purposeful Behavior
Utility
O 1.2

Marginal Analysis
Marginal Benefits Marginal Costs
Copyright 2008 The McGraw-Hill Companies

O 1.3

Key Terms End Show 1-3

Theories Principles and Models

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

The Scientific Method Economic Principle

Generalizations Other-Things-Equal Assumption (ceteris paribus) Graphical Expression
Copyright 2008 The McGraw-Hill Companies

O 1.4

Key Terms End Show 1-4

Macro and Microeconomics

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Macroeconomics
Aggregate

Microeconomics
Individual Units

Key Terms End Show 1-5

Positive Economics Normative Economics

Copyright 2008 The McGraw-Hill Companies

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Key Terms End Show 1-6

Individuals Economizing Problem Limited Income Unlimited Wants A Budget Line Attainable and Unattainable Combinations Tradeoffs & Opportunity Costs Choice Income Change

O 1.5

W 1.1

Copyright 2008 The McGraw-Hill Companies

Individuals Economizing Problem

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

$120 Budget
DVDs Books $20 $10

12 10
Income = $120 Quantity of DVDs

Key Terms End Show 1-7

6 5 4 3 2 1 0

0 2 4 6 8 10 12

8 6 4 2 0

Pdvd = $20

=6

Unattainable

Income = $120 Pb = $10

= 12

Attainable

Quantity of Books

10

12

14

Copyright 2008 The McGraw-Hill Companies

Societys Economizing Problem

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Scarce Resources Resource Categories

Land Labor Capital
Investment

Key Terms End Show 1-8

Entrepreneurial Ability

Factors of Production
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Full Employment Fixed Resources Fixed Technology Two Goods

Consumer Goods (Pizzas) Capital Goods (Industrial Robots)
Copyright 2008 The McGraw-Hill Companies

Key Terms End Show 1-9

Production Possibilities Model Production Possibilities Table

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Production Alternatives

Type of Product

A 0

B 1

C 2

D 3

E 4

Pizzas
(in hundred thousands)

Industrial Robots
(in thousands)

10

Key Terms End Show 1-10

Copyright 2008 The McGraw-Hill Companies

Plot Points to Create Graph

Production Possibilities Model Production Possibilities Curve

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

14 13 12 11 10 9 8 7 6 5 4 3 2 1
0

B
A B C C

Unattainable

G 1.1

Industrial Robots

Economic Growth
D

Attainable
E 1 2 3 4 5 6 7

Now Attainable
E 8 9

Key Terms End Show 1-11

Pizzas
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model Production Possibilities Curve

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

14 13 12 11 10 9 8 7 6 5 4 3 2 1
0

B
A B C C

Unattainable

Industrial Robots

Law of Increasing Opportunity Cost

D

Shape of the Curve

E
W 1.2

Attainable
E 1 2 3 4 5 6 7 8 9

Key Terms End Show 1-12

Pizzas
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model Production Possibilities Curve

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

14 13 12 11 10 9 8 7 6 5 4 3 2 1
0

Unattainable
C

Industrial Robots

U
D

Under or Unemployment

E 1 2 3 4 5 6 7 8 9

Key Terms End Show 1-13

Pizzas
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model

Optimal Allocation of Resources
Marginal Benefit & Marginal Cost
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

15

a
MB = MC

MC

10

d
MB

Key Terms End Show 1-14

2 3 Quantity of Pizza

Copyright 2008 The McGraw-Hill Companies

Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Unemployment Growth and the Future A Growing Economy Economic Growth

Increasing Resource Supplies Increasing Resource Quality Technological Advances
Copyright 2008 The McGraw-Hill Companies

Key Terms End Show 1-15

Present Choices & Future Possibilities

G 1.2
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Compare Two Hypothetical Economies

Goods for the Future

Future Curve

Goods for the Future

Future Curve
F

Current Curve

Current Curve

Goods for the Present Presentville

Goods for the Present Futureville

Key Terms End Show 1-16

Implications of International Trade

Copyright 2008 The McGraw-Hill Companies