Economics

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Economics

• Introduction to Basic Concepts

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Economic perspective

• An unique way of thinking about economic
  issues
• Scarcity and Choice
• Rational Behavior
• Marginal Thinking Costs and Benefits
• One unit at a time

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Why Study Economics?

• Economics for Citizenship
• Professional and Personal Application

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Principles Are Derived At Two Levels

• Macroeconomics economy as a whole and its basic
  subdivisions such as government, business and
  households. Macro looks at totals or aggregates
  to examine the big picture.
• Microeconomics looks at specific units or
  segments of the economy, a particular
• firm or household. Micro looks at the trees not
  the forest.

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Economic Views

• POSITIVE economics collects and presents facts.
  It avoids value judgmentsjust the facts,
  madam!
• Positive economics concerns WHAT IS what the
  economy is really like.

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Economic Views cont.

• NORMATIVE economics involves value judgments
  about what the economy should be
• like or which policies are best.
• Normative economics embodies subjective feelings
  about WHAT OUGHT TO BE examining the
  desirability of certain conditions or aspects of
• the economy.

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Scarcity

• Unlimited wants v. Limited resources
• Considered the basic economic problem.
• Examples
• Time study v. soccer game
• Money vacation v. addition to home
• Shortage v. Scarcity

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Trade-Offs Opportunity Cost

• Choices lead to costs
• Trade-offs choosing between alternative
  uses of a resource.
• Opportunity cost loss of the next best
  alternative use for a resource.
• Production Possibility Curve a graphical
  illustration of opportunity cost.

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PPCs

• Economic model of Trade-offs and Opportunity
  Costs
• 4 basic assumptions
• Efficiency full employment and
• productive efficiency
• Fixed resources
• Fixed Technology
• Two products

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PPCs cont.
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PPC for Pizza and Industrial Robots
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The PPC
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Optimal Output MB MC
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Present choices Future outcomes
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Strategies to expand the production possibilities
frontier

• Discover new land resources
• Increase population and/or loosen immigration
  policy
• Education training
• Increase productivity/technology

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PPC

• Practice problems 3 and 4 in your packet.

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Absolute and Comparative Advantage
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Determining Comparative Advantage

• Two methods
• Output same amount of resources,
• different output
• Input differing amount of resource,
• same output

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How do we calculate the advantage?

• Input Method Item Produced
• O U I Opportunity Cost
• Output Method Opportunity Cost
• O O O Item Produced

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Comparative Advantage Applications

• Directions Answer the following questions for
  each problem.
• Does the Output vary or does the Input vary in
  this problem?
• Who has the absolute advantage for each product?
• Who has the Comparative advantage for the first
  product?
• Who has the comparative advantage for the second
  product?
• Within what range will the terms of trade be?

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Comparative Advantage Problems

• Joy gives two haircuts or one perm in an hour.
  Susie gives three haircuts and two perms in an
  hour.
• B. Ana takes 30 min. to wash dishes or one hour
  to sweep the house. Joe takes 15 min. for dishes
  or 45 min. to sweep.

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Comparative Advantage Problems

• C. George fixes sixteen flats or eight breaks per
  day. Amy fixes fourteen flats or eight breaks per
  day.
• D. Texans require 10 hours of labor per unit of
  beef produced and 30 hours of labor per unit of
  cotton produced. Virginians require 15 hour of
  labor per unit of beef and 40 hours of labor per
  unit of cotton.

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Circular Flow Model
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