Did you know?

• As you watch the video, make a mental note of one of the facts. How does it effect the economy? We will discuss this!

• Did you know?

Real Life Economics

• 5 minutes

• Play as many games of Rock-Paper-Scissors – Winner earns candy of choice– Winners continue playing into you have the

desired candy (or none at all)

• Why did we do this?

Introductions

• Interview your partner– Name – Best thing about being a senior– Post high school plans– Preferred superpower—Fly OR Be invisible

• Return to Your Seat

• Introduce Your Partner to the Class

01

Limits, Alternatives, and Choices

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

What is Macroeconomics?

• Quick definition of Macroeconomics

LO1

Introduction

• Economics defined:

• Economic wants exceed productive capacity.

• A social science concerned with making optimal choices under conditions of scarcity.

1-6

LO1

The Economic Perspective

• Thinking like an economist

• Key features:

• Scarcity and choice

• Purposeful behavior

• Marginal analysis

1-7

LO1

Scarcity and Choice

• Resources are scarce

• Choices must be made

• Opportunity cost

• There’s no free lunch

1-8

LO1

Purposeful Behavior

• Rational self-interest

• Individuals and utility

• Firms and profit

• Desired outcomes

1-9

LO1

Marginal Analysis

• Marginal benefit

• Marginal cost

• Marginal means “extra”

• Comparison between marginal benefit and marginal cost

1-10

LO2

Theories, Principles, and Models

• The scientific method:

• Economic principles

• Generalizations

• Other-things-equal assumption – ceteris paribus

• Graphical expression

Observe Formulate a hypothesis Test the hypothesis

Accept, reject, or modify the hypothesis

Continue to test the hypothesis, if necessary

1-11

LO3

Microeconomics and Macroeconomics

• Microeconomics

• Decision making by individual units

• Macroeconomics

• Aggregate

1-12

LO3

Positive and Normative Economics

• Positive economics- Deals with economic facts• The rising price of crude oil on world

markets will lead to an increase in cycling to work

• Normative economics - A subjective perspective of the economy• Unemployment is more harmful than

inflation1-13

LO4

Society’s Economizing Problem

• Scarce resources

• Land

• Labor

• Capital

• Entrepreneurial Ability

1-14

LO4

Society’s Economizing Problem

• Entrepreneurial ability

• Takes initiative

• Makes decisions

• Innovates

• Takes risk

• Entrepreneurs

1-15

LO5

Production Possibilities Model

Illustrates production choices

•Assumptions:

• Full employment

• Fixed resources

• Fixed technology

• Two goods

• PPC video1-16

LO5

Production Possibilities Table

Type of Product

Pizzas (in hundred thousands)

Industrial Robots (in thousands)

Production Alternatives

A B C D E

10 9 7 4 0

0 1 2 3 4

Plot the Points to Create the Graph…

1-17

LO5

Production Possibilities Curve

The law of increasing opportunity costs makes the PPC concave.

1-18

Pizzas

Indu

stria

l Rob

ots

Attainable

0 1 2 3 4 5 6 7 8 9

1413121110 9 8 7 6 5 4 3 2 1

Unattainable

AB

C

D

E

U

Optimal Allocation

LO5

a

b

c

d

e

MB = MC

MC

MB

15

10

5

01 2 3

Quantity of Pizza

Mar

gin

al B

enef

it &

Mar

gin

al C

ost

1-19

LO6

A Growing Economy

• Causes of Economic Growth

• More resources

• Improved resource quality

• Technological advances

• International trade – it leads to specialization

1-20

Type of Product

Pizzas (in hundred thousands)

Industrial Robots (in thousands)

Production Alternatives

A' B' C' D' E'

14 12 9 5 0

0 2 4 6 8

A Growing Economy

LO6 1-21

LO6

A Growing Economy

Pizzas

Ind

ust

rial

Ro

bo

ts

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

AB

C

D

E

EconomicGrowth

Now Attainable

A’

B’

C’

D’

E’

1-22

LO6

Present Choices, Future Possibilities

Goods for the Present

Goo

ds f

or t

he F

utur

e

Goo

ds f

or t

he F

utur

e

Goods for the Present

P

F

CurrentCurve

CurrentCurve

FutureCurve

FutureCurve

Presentville Futureville

1-23