Economics "The Dismal Science"

Summary A.The fundamental problem B.Economic growth / decline

The Fundamental Problem A.The fundamental problem 1.Why can you and me not have everything we want? 2.Why can a country not have everything it wants? our wants exceed our resources 3.The answer: our wants exceed our resources Scarcity: 4. Scarcity: lack of enough resources to satisfy all desired uses of those resources Economics: 5. Economics: the study of how best to allocate scarce resources among competing uses Opportunity cost: 6. Opportunity cost: the most desired goods and services that are forgone in order to obtain something else

The Fundamental Problem A.The fundamental problem cont. 7.The central problem of scarcity forces every society to make difficult choices a.WHAT to produce: because wants exceed resources, we have to decide WHAT we want most, sacrificing less desired activities and goods Factors of production: * Factors of production: resource inputs used to produce goods and services; i.e., land, natural resources, labor, capital, entrepreneurship and technology

The Fundamental Problem A.The fundamental problem cont. b.HOW to produce 1)What factors of production do we have? 2)Environmental or social concerns c.FOR WHOM to produce: the question focuses on how an economy's output is distributed across members of society 8.The mechanisms of choice (how do you answer the three questions posed above) a.The political process

The Fundamental Problem A.The fundamental problem cont. b.The market mechanism (pricing) *Laissez faire: the doctrine of "leave it alone", of nonintervention by government in the markets c.Central planning 1)Government planners decides WHAT gets produced, HOW it is produced, and FOR WHOM 2)Karl Marx 3)North Korea, Cuba, and to a lesser extent Zimbabwe

The Fundamental Problem A.The fundamental problem cont. d.Mixed economies 1)An economy that uses both market and nonmarket signals to allocate goods and services 2)Singapore, New Zealand, U.S.

Economic Growth / Decline B.Economic Growth / Decline 1.What is the business cycle? *SlideSlide Gross domestic product (GDP): 2. Gross domestic product (GDP): the total value of final goods and services produced within a nation's borders in a given time period Per capita GDP: 3. Per capita GDP: total GDP divided by total population

GDP Growing GDP Decreasing

B. Economic Growth / Decline cont. Recession: 4. Recession: a decline in total output (GDP) for two or more consecutive quarters Depression: 5. Depression: a decline in GDP of more than 10% and increased levels of unemployment *Great Depression 1)Peak 25% 2)Greatest GDP decline ~ 50% Unemployment rate: 6. Unemployment rate: the proportion of the labor force that is unemployed Inflation: 7. Inflation: an increase in the level of prices of goods and services Economic Growth / Decline

Unemployment Rates

B. Economic Growth / Decline cont. Deflation: 8. Deflation: a decrease in the average level of prices of goods and services Stagflation: 9. Stagflation: the simultaneous occurrence of substantial unemployment, falling asset prices, and inflation of normal everyday goods (gas and food for example) Price stability: 10. Price stability: the absence of significant changes in the average price level; officially defined as a rate of inflation of less than 3% Hyperinflation: 11. Hyperinflation: There is no precise numerical definition to hyperinflation. This is a situation where price increases are so out of control that the concept of inflation is meaningless. Economic Growth / Decline

Zimbabwe's annual rate of inflation has hit a new record high of 2.2 million percent

The End

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