1. Introduction: Economic Issues Introduction: Economic Issues

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

3. 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 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

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

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

6. Units of clothing (millions) Units of food (millions) 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 a A production possibility curve

7. Units of clothing (millions) Units of food (millions) 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 b A production possibility curve

8. Units of clothing (millions) Units of food (millions) 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 c A production possibility curve

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

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

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

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

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

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

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

16. 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: 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:

17. 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 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

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

19. 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 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

20. O Growth in potential output Food Clothing Now

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

22. O Food Clothing Growth in potential and actual output

23. O Food Clothing Growth in potential and actual output x y

24. The Economic Problem The circular flow of income –firms and households The circular flow of income –firms and households

25. The circular flow of goods and incomes

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

27. The circular flow of goods and incomes

28. Goods and services

29. 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 income –firms and households –goods markets real flows: goods and services money flows: consumer expenditure

30. The circular flow of goods and incomes Goods and services

31. £ Consumer expenditure The circular flow of goods and incomes

32. 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 circular flow of income –firms and households –goods markets real flows: goods and services money flows: consumer expenditure –factor markets

33. 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 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

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

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

36. 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 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