2. LIMITS, ALTERNATIVES, AND CHOICES Pertemuan 1
Matakuliah : J0594-Teori Ekonomi
Tahun : 2009
LIMITS, ALTERNATIVES, AND CHOICES Pertemuan 1

3. The Economic Perspective
Scarcity and Choice
- Scarce economic resources mean limited goods and Services
- Scarcity restrics options and demand choice
Purposeful behavior
- Economics assumes that human behavior reflects “rational self-
interst”
- Purposeful behavior does not assume that people and institutions are
immune from faulty logic and therefore are perfect decisions maker
- Rational self-interest is not the same as selfishness
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4. The Economic Perspective
Marginal Analysis : Benefits and Cost
- The economic perspective focuses largely on marginal analysis-
comparison of marginal benefits and marginal costs usually for
dicisions making
- In making choices rationally, the decision maker must compare those
two amounts.
- In a wolrd scarcity, the dicisions to obtain the marginal benefit
ascociated with some spesific option always includes the marginal
cost of forgoing something else
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5. Macroeconomics and Microeconomics
Macroeconomics examines either the company as a
whole or its basic subdivisions or aggregates, sucs as the
government, household, and business sector
Microeconomics is the part of economics concerned with
individual unit such a person, a hosehold, a firm, or an
industry
Positive economics deals with factual statement (“what is”),
normative economics involve value judgments (“what
ought to be)
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6. Individual’s Economizing Problem
Limited Income
Unlimited Wants
A Budget Line
Attainable and Unattainable Combinations
Tradeoffs & Opportunity Costs
Choice
Income Change
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7. Individuals’ Economizing Problem
Because wants exceed incomes, individuals face an economizing problems; they must decide what to buy and what to forgo
A Budget line (budget constrains) shows the various combinations of two goods that a consumer can purchase with a spesific money income
straight line budget constarins imply constant opportunity cost asscociated weith obtaining more of either of the two goods
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8. Individuals’ Economizing Problem
$120 Budget 12 10 8 6 4 2
DVDs
$20
Books
$10
Income = $120
Pdvd = $20
= 6 6 5 4 3 2 1 2 4 6 8 10 12
Quantity of DVDs
Unattainable
Income = $120
Pb = $10
= 12
Attainable
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Quantity of Books

9. Society’s Economizing Problem
Scarce Resources
Resource Categories
Land
Labor
Capital
Investment
Entrepreneurial Ability
Factors of Production
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10. Society’s Economizing Problem
Economists catagories economics resources as land, labor,
capital, and entrepreneurial ability
The production possibilities curve illustrates several ideas :
a. scarcity of resources
b. choice among outputs
c. opportunity cost
d. the law of increasing opportunity cost
A comparison of marginal benefits and marginal cost is
needed to determine the best or optimal output mix on a
production possibilities curve
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11. Production Possibilities Model
Assume :
Full Employment
Fixed Resources
Fixed Technology
Two Goods
Consumer Goods (Exp :Pizzas)
Capital Goods (Exp : Industrial Robots)
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12. Production Possibilities Model
Production Possibilities Table
Production Alternatives
Type of Product A B C D E
Pizzas
(in hundred thousands) 1 2 3 4
Industrial Robots
(in thousands) 10 9 7 4
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Plot Points to Create Graph…

13. Production Possibilities ModelA’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’
Unattainable A
Economic
Growth B C’
Industrial Robots C D’ D
Now Attainable
Attainable E E’
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Pizzas

14. Production Possibilities Model
Production Possibilities Curve A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’
Unattainable A B C’
Law of Increasing
Opportunity Cost C
Industrial Robots D’
Shape of
the Curve D
Attainable E E’
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Pizzas

15. Production Possibilities Model
Production Possibilities Curve A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’
Unattainable C’
Industrial Robots U D’
Under or
Unemployment E’
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Pizzas

16. Production Possibilities Model
Optimal Allocation of Resources a MC c 15 10 5
MB = MC e
Marginal Benefit & Marginal Cost b d MB
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Quantity of Pizza

17. Unemployment, Growth, and the Future
Unemployment causes an economy to operate at point inside its production possibilities curve
Increases in resource supplies, improvements in resource quality, and technological advance cause economic growth, which is depicted as an outward shift of the production possibilities curve
An economiy’s present choice of capital and consumer goods helps determine the fiture location of its production possibilities curve
International specialization and trade enable a nation to obtain more goods than its production possibilities curve indicates
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