Economics
Introduction to Basic
Concepts
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Economic perspective:
An unique way of thinking about
economic issues
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Scarcity and Choice
Rational Behavior
Marginal Thinking: Costs and Benefits
One unit at a time
Why Study Economics?
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Economics for Citizenship
Professional and Personal Application
Principles Are Derived At Two
Levels:
Macroeconomics: economy as a whole and
its basic subdivisions such as government,
business and households. Macro looks at
totals or aggregates to examine the “big
picture”.
Microeconomics: looks at specific units or
segments of the economy, a particular
firm or household. Micro looks at the “trees
not the forest”.
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Economic Views
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POSITIVE economics collects and presents
facts. It avoids value judgments—”just the
facts, madam”!
Positive economics concerns WHAT IS —
what the economy is really like.
Economic Views cont.
NORMATIVE economics involves value judgments
about what the economy should be
like or which policies are best.
Normative economics embodies subjective feelings
about WHAT OUGHT TO BE —examining the
desirability of certain conditions or aspects of
the economy.
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Scarcity
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Unlimited wants v. Limited resources
Considered the ‘basic economic problem’.
Examples
Time: study v. soccer game
Money: vacation v. addition to home
Shortage v. Scarcity
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Trade-Offs & Opportunity Cost
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Choices lead to costs
Trade-offs: choosing between alternative
uses of a resource.
Opportunity cost: loss of the next best
alternative use for a resource.
Production Possibility Curve: a graphical
illustration of opportunity cost.
PPC’s
Economic model of Trade-offs and Opportunity
Costs;
4 basic assumptions:
Efficiency: full employment and
productive efficiency
Fixed resources
Fixed Technology
Two ‘products’
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PPC’s cont.
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PPC for Pizza and Industrial Robots
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The PPC
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Optimal Output MB = MC
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Present choices & Future outcomes
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Strategies to expand the production
possibilities frontier:
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Discover new land resources
Increase population and/or loosen
immigration policy
Education & training
Increase productivity/technology
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PPC’
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Practice problems 3 and 4 in your packet.
Absolute and Comparative Advantage
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Determining Comparative Advantage
Two methods:
Output: same amount of resources,
different output
Input: differing amount of resource,
same output
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How do we calculate the advantage?
Input Method:
‘ O U I’
Output Method:
‘O O O’
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Item Produced
Opportunity Cost
Opportunity Cost
Item Produced
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Comparative Advantage Applications
Directions: Answer the following questions for each problem.
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Does the Output vary or does the Input vary in this
problem?
Who has the absolute advantage for each product?
Who has the Comparative advantage for the first
product?
Who has the comparative advantage for the second
product?
Within what range will the terms of trade be?
Comparative Advantage Problems
A.
Joy gives two haircuts or one perm in an
hour. Susie gives three haircuts and two
perms in an hour.
B. Ana takes 30 min. to wash dishes or one
hour to sweep the house. Joe takes 15
min. for dishes or 45 min. to sweep.
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Comparative Advantage Problems
C. George fixes sixteen flats or eight breaks
per day. Amy fixes fourteen flats or eight
breaks per day.
D. Texans require 10 hours of labor per unit of
beef produced and 30 hours of labor per
unit of cotton produced. Virginians require
15 hour of labor per unit of beef and 40
hours of labor per unit of cotton.
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Circular Flow Model
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