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01 Limits, Alternatives, and Choices
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
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Economic wants _________ productive capacity
Introduction Economics defined Economic wants _________ productive capacity A social science concerned with making ____________ choices under conditions of _____________________ LO1 1-2
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The Economic Perspective
Scarcity and Choice Purposeful Behavior Marginal Analysis Resources are scarce Rational self-interest Marginal benefit Choices must be made Individuals and utility Marginal cost Opportunity cost Firms and profit Marginal means extra There’s no free lunch Desired outcomes MB and MC LO1 1-3
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Theories, Principles, and Models
The scientific method Observe Formulate a hypothesis Test the hypothesis Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary Economic principles ________________________ Other-things-equal assumption LO2 1-4
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Microeconomics and Macroeconomics
Decision making by ___________________ units Macroeconomics Examines either the economy as a ____________________ or its basic subdivisions or aggregates LO3 1-5
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Positive and Normative Economics
Positive economics Deals with economic _____________________ Normative economics A ____________________ perspective of the economy LO3 1-6
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Individual’s Economizing Problem
Limited ___________________ _____________________ wants A budget line Attainable and unattainable options ______________ and opportunity costs Make the best ________ possible Change in income LO4 1-7
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Individual’s Economizing Problem
12 10 8 6 4 2 Quantity of Paperback Books Quantity of DVDs 6 5 4 3 2 1 8 10 12 DVDs $20 Books $10 $120 Budget Income = $120 Pdvd = $20 = 6 Pb = $10 = 12 Attainable Unattainable LO4 1-8
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Society’s Economizing Problem
Scarce resources ___________ ____________ Entrepreneurial Ability (takes initiatives, makes decisions, innovates, and takes risks) LO4 1-9
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Production Possibilities Model
Illustrates production choices Assumptions Full _______________ Fixed resources Fixed ______________ Two goods LO5 1-10
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Production Possibilities Model
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 Plot the Points to Create the Graph… LO5 1-11
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Production Possibilities Model
14 13 12 11 10 9 8 7 6 5 4 3 2 1 The law of increasing opportunity __________ makes the PPC __________. A B Unattainable C Industrial Robots U D Attainable E Pizzas LO5 1-12
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A Growing Economy Economic Growth Now Attainable Unattainable
14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’ Unattainable A Economic Growth B C’ C Industrial Robots D’ D Now Attainable Attainable E E’ Pizzas LO6 1-13
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Present Choices, Future Possibilities
Compare Two Hypothetical Economies Future Curve Future Curve F Goods for the Future Goods for the Future P Current Curve Current Curve Goods for the Present Goods for the Present Presentville Futureville LO6 1-14
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Pitfalls to Sound Economic Reasoning
Biases ______________ terminology Fallacy of composition Post hoc fallacy ________________ not causation 1-15
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