introduction: economic issues production possibilities
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Introduction: Economic Issues Production Possibilities. The Economic Problem. Economic problems production and consumption scarcity: the central economic problem Macroeconomic issues growth unemployment inflation balance of trade deficits cyclical fluctuations. The Economic Problem. - PowerPoint PPT PresentationTRANSCRIPT
Introduction:Economic Issues
Production Possibilities
The Economic Problem
• Economic problems– production and consumption– scarcity: the central economic problem
• Macroeconomic issues– growth– unemployment– inflation– balance of trade deficits– cyclical fluctuations
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
The Economic Problem
• The production possibility curve– what the curve shows
0
1
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7
8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
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
0
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8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
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
aA production possibility curve
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8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
8m 0.0b 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
0
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8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Units of food Units of clothing (millions) (millions)
8m 0.0 7m 2.2mc 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
0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
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
0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
A production possibility curve
0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
x
A production possibility curve
w
The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost
The Economic Problem
• The production possibility curve– what the curve shows– microeconomics and the p.p. curve:
• choices and opportunity cost• increasing opportunity cost
Units of clothing (millions)
Uni
ts o
f foo
d (m
illio
ns)
Increasing opportunity costs
x
y
0
1
2
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4
5
6
7
8
0 1 2 3 4 5 6 7 8
1
1
z1
2
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 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
v
x
y
O
Making a fuller use of resourcesFo
od
Clothing
Production insidethe production
possibility curve
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
O
Growth in potential outputFo
od
Clothing
Now
O
Food
Clothing
Now
Growth in potential output
5 years’ time
O
Food
Clothing
Growth in potential and actual output
O
Food
Clothing
Growth in potential and actual output
xy
The Economic Problem
• The circular flow of income– firms and households
The circular flow of goods and incomes
The Economic Problem
• The circular flow of income– firms and households– goods markets
• real flows: goods and services
The circular flow of goods and incomes
The circular flow of goods and incomesGoods and services
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 goods and incomesGoods and services
Goods and services
£Consumer
expenditure
The circular flow of goods and incomes
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 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
Goods and services
£Consumer
expenditure
The circular flow of goods and incomes
Goods and services
£Consumer
expenditure
Services of factors of production (labour, etc)
The circular flow of goods and incomes
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
Goods and services
£Consumer
expenditure
Services of factors of production (labour, etc)
The circular flow of goods and incomes
Goods and services
£Consumer
expenditure
Wages, rentdividends, etc.
£
Services of factors of production (labour, etc)
The circular flow of goods and incomes
The Economic Problem
• The circular flow of income (cont.)– macroeconomic issues
• the size of total flows
– microeconomic issues• individual markets• choices within goods and factor markets