Intro to Econsv2
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Introduction to Economics
Use the menu to select the topic you want tostudy.
If you wish you can just work through all the
slides. If you want to learn effectively you MUST makes
notes, try to solve problems and answer thereview questions.
Learning is MOST efficient when YOU are active.
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Navigation
. button above.
To continue use the left click button on your mouse
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Contents
1. Some learning skills
2. Definitions of economics
3. Production Possibilities
7. Scarcity a key idea
5. Positive and normative economics
4. The division of labour
6. Capital and consumption goods trade-off
8. Guide to essay writing in economics this can be foundon the Matrix to learning
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Learning Skills
Vocabulary building a glossary using Word or similar.
My Glossary.doc
Asking questionsExcuse me I do not understand, canyou repeat that
Do not attempt (try) a task if you are not clear (sure)what to do.
Develop note taking skills.
Undertake (do) regular reading check words you donot understand.
Learning is like ajigsaw you cannot really appreciatethe picture if there are pieces missing!
http://h/Resources/My%20Glossary.dochttp://h/Resources/My%20Glossary.doc -
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Learning Skills [contd]
Practice makes perfect Frequent revision revision
Vision the ability to see
Re look again
.. and now some economics!
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What is economics?
Write down your current (now) understanding.
An authoritative definition a definition by arespected person (an authority)
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7
Economics
The study of mankind in the ordinary business of life,choosing between ends and scarce means that havealternative uses. Lionel Robbins
The study of how society uses its scarce resources.
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Adam Smith
1776 An Inquiry into the Nature and Causes of theWealth of Nations
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The Division of Labour
Wealth of Nations Book 1 Chapter 1 Pin factory 18 distinct operations
One man 1 to 20 nails a day
With division of labour 10 men 48,000 = 4800 per
worker
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Advantages of the division of labour
1. Output increases significantly (productivity increases)2. More intensive use of machines (capital)
3. Workers require less training (reduced costs)
4. Time is saved (costs)
5. Workers MAY develop expertisepractice makesperfect
6. Smaller tasks may help the development of machinery
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Disadvantages of the division of labour
1. Monotonous work2. Workers have fewer skills and are vulnerable when
changes occur
3. Quality may suffer (see 1 above)
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Economics as a social science
In the physical sciences knowledge of the worldaccumulates.
The world was assumed to be flat, this was provedincorrect.
The world was recognised as being a sphere.
Maps were developed to explain the topography ofthe world.
Each step in the physical sciences builds on previousknowledge.
Economics is different; although we can build onprevious knowledge our understanding of humanbehaviour is not complete.
The views of economists can and do differ.
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Models
It is important to develop YOUR understanding of theeconomic world.
Models are graphical representations of ideas and areuseful tools of analysis.
A useful method of revision is to check yourunderstanding of models and practise using them forANALYSIS.
Always remember ALL models have simplifying
ASSUMPTIONS. The real world is complex, dynamic and interconnected.
Be careful about drawing conclusions from THEORY.
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Vocabulary
Opportunity Cost Ceteris paribus
Microeconomics
Macroeconomics
Economic theory/model Independent variable
Dependent variable
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An AUTHORITATIVE definition of economics.
The study of mankind in the ordinarybusiness of life, choosing between endsand scarce means that have alternativeuses. Lionel Robbins
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Science or study
Detailed enquiry or investigation. Asking the questions; Why do things happen this way?
Why are some people rich and some people poor?
Careful and logical process classifying actions and
events in a complex world
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Mankind, society, economies
A study of human behaviour;A SOCIAL SCIENCE
Economic has been described as the queen of
the social sciences.
The most important human activity is survival.
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Ends goods and services
Human needs: Food (and drink)
Clothing
Shelter
Human wants: Everything thats not a need
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The Factors of Production (scarce means)
LAND physical space, natural resources, finiteresources, renewable resources.
LABOUR human effort physical and mental
CAPITAL (MOSTLY) tools and machinery but alsomoney
Enterprise (the entrepreneur) the organiser and risktaker
The factors of production are SCARCE in RELATION tothe needs and wants of human kind.
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The science of choice
The resources to produce goods are limited whencompared with the number of goods and services wewould like to produce. For example;
How may we use the resource tree/lumber/timber?
Continue to the next slide
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Mr. Tree
Hi, how manyuses can you
think of for me?BYE, BYE
Timber
Lumber
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Did you think of thisone?
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Scarcity scarce resources
One tree paper, fire wood, furniture, floor boards,source of leisure activity (environmentally important.) etcetera, et cetera, et cetera [etc]
Productive resources
The problem of scarcity.
Scarce not the same meaning as in ordinary use!BEWARE.
Some scarce resources are FINITE they will eventuallyrun out e.g. oil (hydrocarbon fuel).
Some scarce resources are RENEWABLE they can bereplaced e.g. timber, recycled materials
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Scarcitymeans that
there are limitedresources, andtherefore, peoplemust make choices.Look at the pictures
on the right. Whichpictures showscarcity?
1)
2)
3)Press here for
answers
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Answers
Both 1 and 2 show issues of scarcity. One cake twopeople, the second picture shows a number of peopleand a basket of cherries. Choice will have to made todecide who gets the cherries even shares, or someother pattern of distribution
Number three shows one child and one toy and theproblem of scarcity is not immediately obvious.
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Definitions
Full answers CLEAR explanations
Opportunity Cost: the SACRIFICE of the next bestalternative
Ceteris paribus: (Latin) other things being equal usedin theory other variables do not change
SCARCE the key idea in economics. Resources maybe described as scarce when there are many uses for aspecific resource. For example a tree.
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Definitions
Independent variable: a quantity that can be changed byfactors not under consideration. For example pricechange may be caused by a variety of influences.
Dependent variable: a quantity whose value depends onchanges in other variables. For example the amount bebuy (QUANTITY) depends on price.
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Review
How can you define economics?
What is opportunity cost?
What does ceteris paribus mean?
Last year a man bought a bicycle for 300. Today the
bicycle is worth 180. What is the current opportunitycost the bike?
What do we mean by the division of labour?
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Review 2
What is macroeconomics about? What is microeconomics about?
The amount we buy is influenced by price. In thisrelationship which is the dependent and which is theindependent variable?
Write down the FACTORS that may influence thedecision to buy?
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Production Possibility Curve
Has a number of different names: Production Possibility Boundary
Production Possibility Frontier (PPF or PPC)
Production Transformation Curve
The PPF is a very useful tool it can be used to illustrate anumber of economic events.
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Production Possibility Model
Purpose of the model Show scarcity constraint
Illustrate economic efficiency
Introduce and illustrate the concept of opportunity
cost
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PPF defined
The Production Possibility Curve (or frontier) shows themaximum amount of two goods/services that can beproduced, given the total amounts of inputs available,and given the technology of production in a fixed periodof time.
Another word/expression for INPUTS? Ceteris paribus the state of technology is constant.
Inputs = factors
of production
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List an economys factors of production.
LAND physical space, natural resources, finiteresources, renewable resources.
LABOUR human effort physical and mental
CAPITAL (MOSTLY) tools and machinery but also
money Enterprise (the entrepreneur) the organiser and risk
taker.
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SU O CO S
Production Possibility Curve
The production possibility curve is a GRAPHICALrepresentation [MODEL] showing various maximumcombinations of output a nation can produce with limitedeconomic resources in a fixed period of time.
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Plot the following
*Note how the table can be converted (changed) into a
GRAPHICAL representation. Graphs or models ineconomics are very useful.
Agricultural Goods Manufactured
(Y axis) Goods (X axis)0 60
1 58
2 55
3 504 42
5 30
6 0
OR
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y
x0
Negative gradient(slope)
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y
x0
Positive gradient(slope)
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y
x0
concave to the origin
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y
x0
CONVEX to theorigin
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PRODUCTION POSSIBILITY CURVEAgriculturalGoods
Manufactured Goods
Show a point that is attainableand a point that is unattainable?
0
100
200
300
400
10 20 30 40 50 60
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PRODUCTION POSSIBILITY CURVEAgriculturalGoods
Manufactured Goods
attainable
unattainable
0
100
200
300
400
10 20 30 40 50 60
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PRODUCTION POSSIBILITY CURVE
Agricultural
Goods
Manufactured Goods
Whats the effect of an improvement
in the technology for producingagricultural goods?
0
100
200
300
400
10 20 30 40 50 60
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PRODUCTION POSSIBILITY CURVE
Agricultural
Goods
Manufactured Goods
0
100
200
300
400
10 20 30 40 50 60
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PRODUCTION POSSIBILITY CURVE
Agricultural
Goods
Manufactured Goods
Whats the effect of an increase in
total resources (inputs)?
0
100
200
300
400
10 20 30 40 50 60
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PRODUCTION POSSIBILITY CURVE
Agricultural
Goods
Manufactured Goods
How can an economyincrease the quantity offactors of production(resources)?
0
100
200
300
400
10 20 30 40 50 60
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Production Possibilities Frontier
A through Fareattainable and efficient
Irepresents inefficient
use of resources Urepresents
unattainablecombinations
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Shifts in the PPF
Increase in available resources Decrease in available resources
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What does this PPF suggest?
FOOD
(millions of
units)
Cloth (millions of tonnes)
0
y
x
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What does the PPC tell us?
Points inside the PPC are inefficient.
For any point inside there corresponds some
point that represents more production of bothgoods.
Note that while points on the PPC are efficient,we cannot say at this time whether some arebetter for society than others.
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Why is the PPFthis shape?
(concave to the
origin)
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Answer the following questions - 5 minutes
Good A
Good B
10
8
4 5
U
X
1. What does point X show?[Answer]
2. If the production of goodA increase by one unit what
is the opportunity cost?[Answer]
3. What does point U
illustrate? [Answer]
4. What does point Killustrate? [Answer]
K
0
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Answers
1. Unattainable or impossible combinations of goods Aand B at this moment in time.
2. The opportunity cost is 2 units of good B
3. Point U shows an INEFFICIENT combination of goods
and services. This may be because resources (factorsof production) are UNEMPLOYED or resources arebeing wasted.
4. Point K and all other points on the production possibilitycurve show the maximum amount of goods that can beCURRENTLY produced. All points are
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Test Questions [15 minutes]
Use a PPF to show the difference between a rich countryand a poor country [5]
A country can make guns or butter. Its factors ofproduction are mostly efficient at agricultural production.Show this on a PPF model [5]
Define economics [2]
What are the factors of production? [4]
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Explain the Shape of the Production PossibilityCurve
Resources are not equallysuited to the production ofboth goods. As we increasethe production of Good A, we
begin to use resources bestsuited for good B causingIncreasing Opportunity Costand therefore the slope of thefrontier get steeper.
Good A
Good B
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Explain Shifts in the Production PossibilityCurve
Shift result from a change in
technology or the availability
of resources. Decreases shift
in, increases shift out. If thechange affects only one
product, the shift will only be
along one axis.
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Capital/Consumer Good Trade Off
The opportunity
cost of futuregrowth is lessconsumer goods inthe present, going
from point A to B
Capital
goods and
services
Consumer goods and
services
A
B
0
If combination A ischosen the economywill GROW in thenext time period andthe PPF will moveoutwards.
If point B is chosenmore capital will
increase theeconomys
capacity to grow.
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Economics trains you to. . . .
Think in terms of alternatives.
Evaluate the cost of individual and _ _ _ _ _choices.
Examine and understand how certain eventsand issues are _ _ _ _ _ _ _.
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Think in terms of alternatives.
Evaluate the cost of individual andsocialchoices.
Examine and understand how certain eventsand issues arerelated.
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The Economist as a Scientist
The economic way of thinking . . .
Involves thinking analyticallyandobjectively.
Makes use of thescientific method.
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The Scientific Method
Uses abstract_ _ _ _ _ _ to help explainhow a _ _ _ _ _ _ _ _, real world operates.
Develops _ _ _ _ _ _ _ _, collects, and
analyses data to prove the theories.
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The Scientific Method
Uses abstract models to help explainhow a complex, real world operates.
Develops theories, collects, andanalyses data to prove the theories.
Observation, Theory and More Observation!
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The Role of Assumptions
Economists make _ _ _ _ _ _ _ _ _ _ _ in order tomake the world easier to understand.
The art in scientific thinking is deciding which _ _
_ _ _ _ _ _ _ _ _ to make.Economists use different _ _ _ _ _
_ _ _ _ _ _ to answer different questions.
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The Role of Assumptions
Economists make _ _ _ _ _ _ _ _ _ _ _ in order tomake the world easier to understand.
The art in scientific thinking is deciding which _ _
_ _ _ _ _ _ _ _ _ to make.Economists use different _ _ _ _ _
_ _ _ _ _ _ to answer different questions.
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The Role of Assumptions
Economists make ASSUMPTIONS in order tomake the world easier to understand.
The art in scientific thinking is deciding which
assumptions to make.Economists use different assumptions to answer
different questions.
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Which of the following is not a factor of
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Which of the following is not a factor ofproduction?
a) A computerb) An economics teacher
c) A S$100 bank note
d) A coal mine
DA B C
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Economic Models
Economists use _ _ _ _ _ _ to simplify reality in order toimprove our understanding of the world
Example:
The Production Possibility Frontier
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The Production PossibilityFrontier/Boundary
The production possibilities frontier is a MODELshowing the various combinations of output that the
economy can possibly produce given the availablefactors of production and technology.
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The Production Possibilities Frontier
Quantity ofComputersProduced
Quantity ofCars Produced
3,000
0 1,000
2,000
700
1,000
300
A
B
2,200
600
C
D
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The Production Possibilities Frontier
Quantity ofComputersProduced
Quantity ofCars Produced
3,000
1,000
2,000
2,200A
7006003000 1,000
B
C
D
Productionpossibilitiesfrontier
Explain whatyou think can be
shown using
points A, B, C, D
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Concepts/Ideas Illustrated by the Production PossibilitiesFrontier
EfficiencyTradeoffs
Opportunity Cost
Economic Growth
Draw 4 models to showthese concepts/ideas
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The ProductionQuantity
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4,000
The ProductionPossibilities Frontier
Quantityof ComputersProduced
Quantity ofCars Produced
3,000
2,000A
700
0
1,000
E2,100
750
An outward shift inthe productionpossibilities frontier
How can you
explain this
shift?
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Economics is the study of
a) How to read the Wall Street Journalb) How to allocate unlimited resource to limited wants.
c) How to meet the needs of society
d) How to allocate limited resources to unlimited wants.
Click on a letter below to find the answer
A B C D
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Microeconomics and Macroeconomics
Microeconomics focuses on the individualparts of the economy.
How households and firms make decisionsand how they interact in specific markets
Macroeconomicslooks at the economy as awhole.
How the markets, as a whole, interact at
the national level.
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Two Roles of EconomistsWhen they are trying to explain the world, they
are scientists.
When they are trying to change the world, theyare policymakers.
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Make a list of the problems in Singapore that aneconomist could help solve?
Unemployment Rising prices INFLATION
International trade Singapore has a large tradeSURPLUS
Economic Growth show this on a PPF model. Distribution of income the gap between the rich and
the poor.
Housing problems SUPPLY and price - this is related
to INTEREST RATES
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Positive versus Normative Analysis
Positive statements are statements thatdescribe the world as it is.
Called descriptiveanalysis
Normative statements are statements abouthow the world should be.
Called prescriptiveanalysis
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?
?Positive or Normative Statements?An increase in the minimum wage will cause adecrease in employment among the least-skilled.
Higher government budget deficits will cause
interest rates to increase.
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?
? ?
?
Positive or Normative Statements?
The income gains from a higher minimum wageare worth more than any slight reductions inemployment.
Governments should be allowed to collect fromtobacco companies the costs of treating
smoking-related illnesses among the poor.
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An economy FACILITATES which of the following?
a) What to produce?
b) How to produce?
c) Who receives the benefits of production?
d) All of the above.
A B C D
Click on a letter to find the answer
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Economists in Government . . .
. . . serve as advisers in the policymakingprocess of the three branches of government:
Legislative
Executive
Judicial
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Summary
In order to address subjects with objectivity,economics makes use of the scientific method.
The field of economics is divided into twosubfields: microeconomics andmacroeconomics.
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Summary
Economics relies on both positive and normativeanalysis. Positive statements assert how theworld is while normative statements assert how
the world should be.
Economists may offer conflicting advice due todifferences in scientific judgments or to differencesin values.
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Thats all folks!!
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You must be an A student.. Well done!
Press here to return to the presentation
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8/2/2019 Intro to Econsv2
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