We use this economics book, to also answer these questions: How are the prices of goods and services...

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We use this economics book, to also answer these questions: • How are the prices of goods and services determined? • How does pollution affect the economy, and how should government policy deal with these effects? • Why do firms engage in international trade, and how do government policies affect international trade? • Why does government control the prices of some goods and services, and what are the effects of those controls?

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Transcript of We use this economics book, to also answer these questions: How are the prices of goods and services...

Page 1: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

We use this economics book, to also answer these questions:

• How are the prices of goods and services determined?

• How does pollution affect the economy, and how should government policy deal with these effects?

• Why do firms engage in international trade, and how do government policies affect international trade?

• Why does government control the prices of some goods and services, and what are the effects of those controls?

Page 2: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Economics

The study of how scarce, or limited resources are used to satisfy unlimited material wants and needs; the study of decision

making in a world of scarcity.

Page 3: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Unlimited wants

Limited resources to satisfy wants

Choose between alternatives

Page 4: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Scarce GoodsFood (bread, milk, meat, eggs, vegetables, coffee, etc.) Clothing (shirts, pants, blouses, shoes, socks, coats, sweaters, etc.) Household (tables, chairs, rugs, beds, goods dressers, television sets, etc.)

Space exploration

Education

National defense

Recreation

Leisure time

Entertainment

Clean air Pleasant (trees, lakes, rivers, environment open spaces, etc.)

Pleasant working conditions

Limited Resources

Land (various degrees of fertility)

Natural (rivers, trees, minerals, Resources oceans, etc.)

Machines and other human-made physical resources

Non-human animal resources

Technology (physical and scientific “recipes” of history)

Human (the knowledge, skill, resources and talent of individuals)

Scarcity and Choice

Page 5: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Causes prices to change accordingly

PricesCompetition for scarce

goods

Page 6: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Basic Assumptions

As we study how people make choices and interact in markets, we will return to these important ideas:

Page 7: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

a. Consumers and firms use all available information as they act to achieve their goals, weighing the benefits and costs of each action, and choosing an action only if the benefits outweigh the costs—even if it is not always the “best” decision..

1. People are rational.

Basic Assumptions

Consumers make rational decisions, based on costs

Page 8: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. Incentives matter

As personal benefits (costs) from choosing an option increase, other things constant, a person will be more (less) likely to choose that option.

Basic Assumptions

Page 9: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Obesity is an increasing problem in the United States.

Does Health Insurance Give People an Incentive to Become Obese?

By reducing some of the costs of obesity, health insurance may give people an economic incentive to gain weight.

Makingthe

Connection

Page 10: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

3. Economic reasoning focuses on the impact of marginal changes.

Decisions will be based on marginal costs

-the cost of buying or making one more unit

and marginal benefits (utility).

- The increase in satisfaction from buying or making one more unit

Basic Assumptions

Page 11: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

TradeoffsChoices involve tradeoffs and consequences.

- give up to get

It involves a value judgment.

- decide the relative importance of alternatives

Page 12: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Opportunity Cost

Involves evaluating the costs and benefits of choices.

What must be given up to get one more unit of another good or

service

There is no such thing as a free lunch.

Page 13: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,
Page 14: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,
Page 15: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Trade-offs force society to make choices when answering the following three fundamental questions:

1.What goods and services will be produced?. Each choice made comes with an opportunity cost, measured by the value of the best alternative given up.

2.How will the goods and services be produced? Firms often face a trade-off between using more workers or using more machines.

3.Who will receive the goods and services produced? There are disagreements over whether there should be more or less redistribution of income.

Page 16: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

How Decisions are MadeUsing an Economic System

Method of organizing the relationship between businesses, households and the government to make the production decisions4 Types

Page 17: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

1. Agrarian or TraditionalA. What?

What the family business has been producing (for generations)

B. How?Using the same method that have been used (for generations)

No incentive for change

C. For Whom?Determined by place in society.

Page 18: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. Market EconomiesA. What?- Goods and services that are profitable

- Goods and services consumers want.B. How?

Efficiently- least cost combination of resources

C. For Whom?Those who can pay.

Page 19: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

3. Planned EconomiesA. What?-Goods needed to meet economic planning targets

B. How?Aimed at achieving targets

Switch resources around to meet targetsC. For

Whom?Government decides who gets goods

Bonuses for important workers

Page 20: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

4. Mixed Economies- Combine aspects of market

and planned economies

- Includes almost all economies

Page 21: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

4. Mixed Economies

Coordinating Mechanism

Reso

urc

e

Ow

ners

hip

Market System Planning

Private

Public

US

CubaChina

Nazi German

y

Page 22: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

1. Businesses are free to produce what ever they want and are always looking for cost-cutting techniques of production.

Traditional? Mixed?Planned?Market?

MarketMarketMarket

Page 23: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. A catering business goes bankrupt, but its employees receive unemployment compensation while they look for other jobs.

Traditional?Mixed?

Planned?Market?MixedMixedMixed

Page 24: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

3. Union and management representatives submit a deadlocked labor contract negotiation to the government for mediation.

Traditional? Mixed?

Planned?Market?MixedMixedMixed

Page 25: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

4. Workers who have lost their jobs and incomes cut back their spending because there is no alternative source of emergency financial support once their savings runs out.Traditional?Mixed?Planned?Market?MarketMarketMarket

Page 26: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

5. Consumers are unable to obtain fuel injectors and

windshield wiper motors for their cars because they are not being produced, yet accordions, which are plentiful and not in demand,

continue to be produced.Traditional?

Mixed?

Planned?

Market?

PlannedPlannedPlanned

Page 27: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

It also means doing the job they were trained or

designed to do

Productive Efficiency

Goods and services are produced at the lowest cost.

Page 28: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

or

Equity (the distribution of economic benefits)

Should people receive based on their relative need for the goods and services?

Should every person receives as much as every other person?

or

Should people be rewarded for their contribution to the production?

Page 29: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

modeling

1. Make Assumptions

a. Principle - relationship

b. Theory – string of principlesc. Law –theory proven to hold true most times

Page 30: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

a. Inductive

Hypothesis

Use facts to develop a modelTake a survey and study the results

b. DeductiveSee if the facts support a hypothesisStart with a theory and see if facts support it

Page 31: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. Use data to test hypothesis

“Need facts to support theories and theories to make sense of facts.”

facts

Page 32: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Predicting BehaviorPositive Economic Statements

- relationships that can be tested

- The class is half full

- Unemployment is 6%

- if incomes rise people spend money

Page 33: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Normative Economic Statements

- statements about “what should be” or make a value judgment

- It is too hot

- Unemployment should be around 4%

- we should raise the minimum wage.

Page 34: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

Pitfalls

1.Ceteris Paribus – other things being equal - only consider price changes

Page 35: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. Cause and Effect – one event may not be the cause of

another- sunrise and the rooster

Pitfalls

- you, me and this class

Page 36: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

3. Fallacy of Composition – what is good for some may not be

good for others- increased wages-time of this class

Pitfalls

Page 37: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

1. Graphs of one Variable - market shares - bar graphs, pie charts

Economic graphs

Figure 1A.1 Bar Graphs and Pie Charts

Page 38: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. Graphs of two Variables - price, quantity - demand curve

Economic graphs

Page 39: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

2. Inverse, or negative, relationship - Graph slopes down from left to

right

1. Direct, or positive, relationship - Graph slopes up from left to right

Economic graphs

3. Slope Rise Run

Page 40: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

3. Percent change new - old old

4. Area of a triangle 1\ 2 base x height

Page 41: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

1. When an economist states that a good is scarce, he means that:a. Production cannot expand the availability of the good.b. It is rare.c. Desire for the good exceeds the amount that is freely

available from nature.d. People would want to purchase more of the good at any

price.

2. The highest valued alternative that must be given up in order to choose an action is called its

a. opportunity cost.b. utilityc. scarcityd. ceteris paribus

Page 42: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

3) By definition, economics is the study ofA) how to make money in the stock market.B) how to make money in a market economy.C) the choices people make to attain their goals, given their scarce resources. D) supply and demand. 4) Economists assume that individualsA) behave in unpredictable ways.B) will never take actions to help others.C) prefer to live in a society that values fairness above all else.D) are rational and respond to incentives. 5) Marginal analysis involves undertaking an activityA) until its marginal costs start declining.B) only when its marginal benefits are positive.C) until its marginal benefits equal marginal costs.D) only if its marginal costs are greater than its marginal benefits.

Page 43: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

6) The highest valued alternative that must be given up to engage in an activity is the definition ofA) economic equity.B) marginal benefit.C) opportunity cost.D) marginal cost. 7) How are the fundamental economic questions answered in a market economy?A) The government alone decides the answers.B) Individuals, firms, and the government interact in markets to decide the answers to these questions. C) Households and firms interact in markets to decide the answers to these questions. D) Large corporations alone decide the answers.

 8) ________ is a situation in which a good or service is produced at the lowest possible cost.A) Allocative efficiencyB) Productive efficiency C) EquityD) Optimal marginalism 

Page 44: We use this economics book, to also answer these questions: How are the prices of goods and services determined? How does pollution affect the economy,

9) Which of the following questions or statements regarding medical school is normative?A) How do changes in expected future incomes affect the decisions of medical students about which specialty to choose?B) Medical students who enter specialized fields make a larger contribution to society than do student who enter primary care.C) What role does tuition play in a student's decision about whether to attend medical school?D) Have tuition increases had a large effect or a small effect on the number of applications to medical school?

10) In economics, the accumulated skills and training that workers have is known as A) human capital. B) entrepreneurship.C) physical capital. D) innovation. 11) The machines workers have to work with are consideredA) human capital. B) physical capital.C) entrepreneurship. D) financial capital. 12) The relationship between consumer spending and disposable personal income isA) an inverse relationship. B) a direct relationship.C) a negative relationship. D) independent.


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