economist ppt mba
TRANSCRIPT
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Economist
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Thinking Like an Economist
Every field of study has its own terminology
Mathematics integrals axioms vector spaces
Psychology ego id cognitive dissonance
Law promissory estoppel torts venues
Economics
supply opportunity cost elasticity consumersurplus demand comparative advantagedeadweight loss
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Thinking Like an Economist
Economics trains you to. . . .
Think in terms of alternatives.
Evaluate the cost of individual and social choices.
Examine and understand how certain events andissues are related.
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THE ECONOMIST AS ASCIENTIST
The economic way of thinking . . .
Involves thinking analytically and objectively.
Makes use of the scientific method.
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The Scientific Method: Observation, Theory, andMore Observation
Uses abstract models to help explain how acomplex, real world operates.
Develops theories, collects, and analyzes datato evaluate the theories.
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The Role of Assumptions
Economists make assumptions in order tomake the world easier to understand.
The art in scientific thinking is deciding which
assumptions to make.
Economists use different assumptions toanswer different questions.
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Economic Models
Economists use models to simplify reality inorder to improve our understanding of theworld
Two of the most basic economic modelsinclude:
The Circular Flow Diagram
The Production Possibilities Frontier
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Our First Model: The Circular-Flow Diagram
The circular-flow diagramis a visual model ofthe economy that shows how dollars flowthrough markets among households and firms.
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Figure 1 The Circular Flow
Copyright 2004 South-Western
SpendingGoods andservicesbought
RevenueGoodsand servicessold
Labor, land,and capitalIncome
= Flow of inputs
and outputs= Flow of dollars
Factors ofproduction
Wages, rent,and profit
FIRMSProduce and sellgoods and services
Hire and use factorsof production
Buy and consumegoods and services
Own and sell factorsof production
HOUSEHOLDS
Households sellFirms buy
MARKETSFOR
FACTORS OF PRODUCTION
Firms sellHouseholds buy
MARKETSFOR
GOODS AND SERVICES
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Our First Model: The Circular-Flow Diagram
Firms
Produce and sell goods and services
Hire and use factors of production
Households
Buy and consume goods and services
Own and sell factors of production
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Our First Model: The Circular-Flow Diagram
Markets for Goods and Services
Firms sell
Households buy
Markets for Factors of Production
Households sell
Firms buy
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Our First Model: The Circular-Flow Diagram
Factors of Production
Inputs used to produce goods and services
Land, labor, and capital
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Our Second Model: The ProductionPossibilities Frontier
The production possibilities frontieris a graphthat shows the combinations of output that theeconomy can possibly produce given the
available factors of production and theavailable production technology.
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Figure 2 The Production Possibilities Frontier
Copyright2003 Southwestern/Thomson Learning
Productionpossibilitiesfrontier
A
B
C
Quantity of
Cars Produced
2,200
600
1,000
300
0
700
2,000
3,000
1,000
Quantity ofComputers
Produced
D
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Our Second Model: The ProductionPossibilities Frontier
Concepts Illustrated by the ProductionPossibilities Frontier
Efficiency
TradeoffsOpportunity Cost
Economic Growth
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Figure 3 A Shift in the Production Possibilities Frontier
Copyright 2004 South-Western
E
Quantity of
Cars Produced
2,000
700
2,100
750
0
4,000
3,000
1,000
Quantity ofComputers
Produced
A
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Microeconomics and Macroeconomics
Microeconomicsfocuses on the individual partsof the economy.
How households and firms make decisions and
how they interact in specific markets Macroeconomicslooks at the economy as a
whole.
Economy-wide phenomena, including inflation,unemployment, and economic growth
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THE ECONOMIST AS POLICYADVISOR
When economists are trying to explain theworld, they are scientists.
When economists are trying to change the
world, they are policy advisor.
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POSITIVE VERSUS NORMATIVEANALYSIS
Positive statementsare statements thatattempt to describe the world as it is.
Called descriptive analysis
Normative statementsare statements abouthow the world should be.
Called prescriptive analysis
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POSITIVE VERSUSNORMATIVE ANALYSIS
Positive or Normative Statements?
An increase in the minimum wage will cause adecrease in employment among the least-skilled.
POSITIVE
Higher federal budget deficits will cause interestrates to increase.
POSITIVE
?
?
?
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POSITIVE VERSUSNORMATIVE ANALYSIS
Positive or Normative Statements?
The income gains from a higher minimum wageare worth more than any slight reductions in
employment.NORMATIVE
State governments should be allowed to collect
from tobacco companies the costs of treatingsmoking-related illnesses among the poor.
NORMATIVE
?
?
?
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Economists in Washington
. . . serve as advisers in the policymakingprocess of the three branches of government:
Legislative
Executive Judicial
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Economists in Washington
Some government agencies that collecteconomic data and make economic policy:
Department of Commerce
http://www.commerce.govBureau of Labor Statistics
http://www.bls.gov
Congressional Budget Office
http://www.cbo.gov
Federal Reserve Board
http://www.federalreserve.gov
CO O S S
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WHY ECONOMISTSDISAGREE
They may disagree about the validity ofalternative positive theories about how theworld works.
They may have different values and, therefore,different normative views about what policyshould try to accomplish.
Table 2 Ten Propositions about Which Most
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Table 2 Ten Propositions about Which MostEconomists Agree
Copyright 2004 South-Western
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Summary
Economists try to address their subjects with ascientists objectivity.
They make appropriate assumptions and build
simplified models in order to understand the worldaround them.
Two simple economic models are the circular-flowdiagram and the production possibilities frontier.
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Summary
Economics is divided into two subfields:
Microeconomists study decisionmaking byhouseholds and firms in the marketplace.
Macroeconomists study the forces and trends thataffect the economy as a whole
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Summary
A positive statement is an assertion about howthe world is.
A normative statement is an assertion about
how the world ought to be. When economists make normative statements,
they are acting more as policy advisors than
scientists.
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Summary
Economists who advise policymakers offerconflicting advice either because of differencesin scientific judgments or because of
differences in values. At other times, economists are united in the
advice they offer, but policymakers maychoose to ignore it.