Introduction: Economic Issues

The Economic Problem Economic problems Macroeconomic issues production and consumption scarcity: the central economic problem Macroeconomic issues growth unemployment inflation balance of trade deficits cyclical fluctuations

The Economic Problem Microeconomic issues choices: what how for whom the concept of opportunity cost rational decision making weighing up marginal costs and marginal benefits the social implications of choice

The Economic Problem The production possibility curve what the curve shows 4

A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

A production possibility curve Units of food Units of clothing (millions) (millions) a 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 b 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m c 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

A production possibility curve Units of food (millions) Units of clothing (millions)

A production possibility curve w x Units of food (millions) Units of clothing (millions)

The Economic Problem The production possibility curve what the curve shows microeconomics and the p.p. curve: 4

The Economic Problem The production possibility curve what the curve shows microeconomics and the p.p. curve: choices and opportunity cost 4

The Economic Problem The production possibility curve what the curve shows microeconomics and the p.p. curve: choices and opportunity cost increasing opportunity cost 4

Increasing opportunity costs x 1 y 1 2 Units of food (millions) z 1 Units of clothing (millions)

The Economic Problem The production possibility curve what the curve shows microeconomics and the p.p. curve: choices and opportunity cost increasing opportunity cost macroeconomics and the p.p. curve: 4

The Economic Problem The production possibility curve what the curve shows microeconomics and the p.p. curve: choices and opportunity cost increasing opportunity cost macroeconomics and the p.p. curve: production within the curve 4

Making a fuller use of resources x Production inside the production possibility curve y Food v O Clothing

The Economic Problem The production possibility curve what the curve shows microeconomics and the p.p. curve: choices and opportunity cost increasing opportunity cost macroeconomics and the p.p. curve: production within the curve shifts in the curve 4

Growth in potential output Food Now O Clothing

Growth in potential output 5 years’ time Food Now O Clothing

Growth in potential and actual output Food O Clothing

Growth in potential and actual output y x Food O Clothing

The Economic Problem The circular flow of income firms and households

The circular flow of goods and incomes

The Economic Problem The circular flow of income firms and households goods markets real flows: goods and services

The circular flow of goods and incomes

The circular flow of goods and incomes Goods and services

The Economic Problem The circular flow of income firms and households goods markets real flows: goods and services money flows: consumer expenditure

The circular flow of goods and incomes Goods and services

The circular flow of goods and incomes Goods and services £ Consumer expenditure

The Economic Problem The circular flow of income firms and households goods markets real flows: goods and services money flows: consumer expenditure factor markets

The Economic Problem The circular flow of income firms and households goods markets real flows: goods and services money flows: consumer expenditure factor markets real flows: services of labour and other factors

The circular flow of goods and incomes Goods and services £ Consumer expenditure

£ The circular flow of goods and incomes Goods and services Consumer expenditure Services of factors of production (labour, etc)

The Economic Problem The circular flow of income firms and households goods markets real flows: goods and services money flows: consumer expenditure factor markets real flows: services of labour and other factors money flows: wages and other incomes

£ The circular flow of goods and incomes Goods and services Consumer expenditure Services of factors of production (labour, etc)

£ £ The circular flow of goods and incomes Goods and services Consumer expenditure Wages, rent dividends, etc. £ Services of factors of production (labour, etc)

The Economic Problem The circular flow of income (cont.) macroeconomic issues the size of total flows microeconomic issues individual markets choices within goods and factor markets