2. 1 - 1 Unit 1 Introduction to Economics

3. 1 - 2 Economics The social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.

4. 1 - 3 MICROECONOMICS... MACROECONOMICS... Ceteris Paribus “All other things equal” Positive Economics - What is Normative Economics - What Ought to be

5. 1 - 4 1.Scarcity 2.Rational Behavior 3.Marginal Analysis The Economic Way of Thinking

6. 1 - 5 What is the difference between a Trade-Off and Opportunity Cost? Trade-Off An exchange for one thing in return for another. Opportunity Cost The costs of your second best choice.

7. 1 - 6 Production

8. 1 - 7 Wants versus Needs GOODS & SERVICES PROVIDE... UTILITY

9. 1 - 8 RESOURCE PAYMENTS RENT INTEREST WAGES PROFIT & LOSS PROPERTY RESOURCES LAND CAPITAL HUMAN RESOURCES LABOR ENTREPRENEUR

10. 1 - 9 Full Employment Full Production Productive Efficiency Allocative Efficiency ECONOMICS & EFFICIENCY

11. 1 - 10 PRODUCTION POSSIBILITIES Assumes... Full Employment Productive Efficiency Fixed Resources Fixed Technology Two Goods for example...

12. 1 - 11 Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES

13. 1 - 12 Law of Increasing Opportunity Cost Economic resources are not completely adaptable to other uses so to make more of one good, it costs more and more of the other good. It’s what PPCs are concave.

14. 1 - 13 Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES Notes... Economic Growth 1 – More resources 2 – Better resources 3 – Technology 4 – Capital Goods

15. 1 - 14 Economic Growth Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A’ B’ C’ D’ E’ PRODUCTION POSSIBILITIES

16. 1 - 15 P Q Marginal Benefit & Cost Quantity of Pizzas $15 10 5 1 2 3 PRODUCTION POSSIBILITIES MC MB Allocative Efficiency: MB=MC MB=MC

17. 1 - 16 ECONOMIC SYSTEMS THE MARKET SYSTEM Pure Capitalism Laissez-faire THE COMMAND SYSTEM Socialism Communism

18. 1 - 17 CIRCULAR FLOW MODEL BUSINESSES HOUSEHOLDS RESOURCE MARKET RESOURCESINPUTS $ COSTS$ INCOMES PRODUCT MARKET GOODS & SERVICES GOODS & SERVICES $ CONSUMPTION$ REVENUE

19. 1 - 18 Market System

20. 1 - 19 MARKETS & PRICES FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ACTIVE, BUT LIMITED, GOVERNMENT SELF- INTEREST COMPETITION CAPITALIST IDEOLOGY

21. 1 - 20 THE INVISIBLE HAND Adam Smith The Wealth of Nations 1776 Individuals try to maximize their own good and by doing so, through trade and profit, society as a whole is better off.

22. 1 - 21 The Three Fundamental Questions... What will be produced? Profitable Goods How will the goods be produced? Least Cost Production Who will get the goods and services? Those who can afford them THE MARKET SYSTEM AT WORK

23. 1 - 22 Comparative Advantage

24. 1 - 23 Input vs. Output Absolute Advantage Comparative Advantage Specialization COMPARATIVE ADVANTAGE Graphically...

25. 1 - 24 PRODUCTION POSSIBILITIES Coffee (tons) 45 40 35 30 25 20 15 10 5 0 30 25 20 15 10 5 0 5 10 15 20 25 30 5 10 15 20 Wheat (tons) Curve For Each Country United StatesBrazil

26. 1 - 25 Total output will be greatest when each good is produced by the nation that has the lowest opportunity cost for that good. Principle of Comparative Advantage PRODUCTION POSSIBILITIES