Economic Activity in Context

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Presentation transcript:

Economic Activity in Context Chapter One: Economic Activity in Context

The Goals of an Economy

Table 1.1: A Potential List of Final Goods

The Issues That Define Economics

Figure 1.1: The General Stock-Flow Diagram Flows Stock Additions Time Subtractions Initial Next Initial Next Stock Stock Starting from an initial quantity of a stock, flows into and out of the stock determine how great the quantity is the next time the stock is measured.

Figure 1.2: A “Bathtub”-Style Diagram Additions or Inflows Subtractions or Outflows Stock Like water flowing into a bathtub, flows that add to a stock will tend to raise its level over time. Like water flowing out of a bathtub, flows that subtract from a stock will tend to lower its level over time.

Economic Tradeoffs

Figure 1.3: Society’s Production Possibilities Frontier As you select different points along the PPF, you see that the more you get of one good, the less you can have of the other.

Figure 1.4: An Expanded Production Possibilities Frontier When the PPF moves “out” (away from the origin), we can obtain previously unattainable production choices, such as points D and E.

Figure 1.5: Society’s Choice between Current Production and Resource Maintenance Society also faces a tradeoff between current production and resource maintenance for the future.

Figure 1.6: Possible Future Production Possibilities Frontiers Current decisions about how to produce will affect our options for future production.