1. Copyright 2008 The McGraw-Hill Companies 1-1 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show 1 Limits, Alternatives, and Choices

2. Copyright 2008 The McGraw-Hill Companies 1-2 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Chapter Objectives Economics Defined –Economic Perspective Role of Economic Theory Microeconomics and Macroeconomics Scarce Resources –The Economizing Problem Production Possibilities O 1.1

3. Copyright 2008 The McGraw-Hill Companies 1-3 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show The Economic Perspective Scarcity and Choice –Opportunity Cost Purposeful Behavior –Utility Marginal Analysis –Marginal Benefits –Marginal Costs O 1.2O 1.3

4. Copyright 2008 The McGraw-Hill Companies 1-4 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Theories Principles and Models The Scientific Method Economic Principle –Generalizations –Other-Things-Equal Assumption (ceteris paribus) –Graphical Expression O 1.4

5. Copyright 2008 The McGraw-Hill Companies 1-5 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Macro and Microeconomics Macroeconomics –Aggregate Microeconomics –Individual Units Positive Economics Normative Economics

6. Copyright 2008 The McGraw-Hill Companies 1-6 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Individual’s Economizing Problem Limited Income Unlimited Wants A Budget Line Attainable and Unattainable Combinations Tradeoffs & Opportunity Costs Choice Income Change O 1.5 W 1.1

7. Copyright 2008 The McGraw-Hill Companies 1-7 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Individual’s Economizing Problem Average Income, Selected Nations Per Capita Income 2004 Switzerland United States Japan France South Korea Mexico Brazil China Pakistan Nigeria Rwanda Liberia Source: World Bank $48,230 41,400 37,180 30,090 13,980 6,770 3,090 1,290 600 390 220 110 Country GLOBAL PERSPECTIVE

8. Copyright 2008 The McGraw-Hill Companies 1-8 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Individual’s Economizing Problem 65432106543210 0 2 4 6 8 10 12 DVDs $20 Books $10 12 10 8 6 4 2 0 2 4 6 8 10 12 14 $120 Budget Income = $120 P dvd = $20 = 6 Income = $120 P b = $10 = 12 Attainable Unattainable Quantity of Books Quantity of DVDs

9. Copyright 2008 The McGraw-Hill Companies 1-9 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Society’s Economizing Problem Scarce Resources Resource Categories –Land –Labor –Capital Investment –Entrepreneurial Ability Factors of Production

10. Copyright 2008 The McGraw-Hill Companies 1-10 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Production Possibilities Model Full Employment Fixed Resources Fixed Technology Two Goods –Consumer Goods (Pizzas) –Capital Goods (Industrial Robots)

11. Copyright 2008 The McGraw-Hill Companies 1-11 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Production Possibilities Model Production Possibilities Table Type of Product Pizzas (in hundred thousands) Industrial Robots (in thousands) Production Alternatives ABCDE 109740 01234 Plot Points to Create Graph…

12. Copyright 2008 The McGraw-Hill Companies 1-12 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Production Possibilities Model Pizzas Industrial Robots Attainable 0 1 2 3 4 5 6 7 8 9 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A B C D E Economic Growth Now Attainable A’ B’ C’ D’ E’ Production Possibilities Curve G 1.1

13. Copyright 2008 The McGraw-Hill Companies 1-13 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Production Possibilities Model Pizzas Industrial Robots Attainable 0 1 2 3 4 5 6 7 8 9 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A B C D E Law of Increasing Opportunity Cost A’ B’ C’ D’ E’ Production Possibilities Curve Shape of the Curve W 1.2

14. Copyright 2008 The McGraw-Hill Companies 1-14 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Production Possibilities Model Pizzas Industrial Robots Under or Unemployment 0 1 2 3 4 5 6 7 8 9 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A’ B’ C’ D’ E’ Production Possibilities Curve U

15. Copyright 2008 The McGraw-Hill Companies 1-15 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Production Possibilities Model 15 10 5 0 1 2 3 a b c d e MB = MC MC MB Optimal Allocation of Resources Quantity of Pizza Marginal Benefit & Marginal Cost

16. Copyright 2008 The McGraw-Hill Companies 1-16 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Unemployment Growth and the Future A Growing Economy Economic Growth –Increasing Resource Supplies –Increasing Resource Quality –Technological Advances

17. Copyright 2008 The McGraw-Hill Companies 1-17 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Present Choices & Future Possibilities Goods for the Present Goods for the Future Goods for the Present PresentvilleFutureville P F Current Curve Current Curve Future Curve Future Curve Compare Two Hypothetical Economies Implications of International Trade G 1.2

18. Copyright 2008 The McGraw-Hill Companies 1-18 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Pitfalls to Sound Economic Reasoning Biases Loaded Terminology Fallacy of Composition Post Hoc Fallacy Correlation but not Causation Last Word

19. Copyright 2008 The McGraw-Hill Companies 1-19 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Key Terms economics economic perspective opportunity cost utility marginal analysis scientific method economic principle other-things-equal assumptionother-things-equal assumption macroeconomics aggregate microeconomics positive economics normative economics economizing problem budget line economic resources land labor capital investment entrepreneurial ability factors of production consumer goods capital goods production possibilities curveproduction possibilities curve law of increasing opportunity costslaw of increasing opportunity costs economic growth

20. Copyright 2008 The McGraw-Hill Companies 1-20 Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individual’s Economizing Problem Society’s Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word Key Terms End Show Next Chapter Preview… The Market System and the Circular Flow