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ANNOUNCEMENT

THEUVLE

ALREADY HAS THE FOURLECTURES INCLUDING THIS ONE

UPLOADED IN IT.

MEMBERS OF THE CLASS ARE

ENJOINED TO ACCESS THE SITE.

ONCE IN UVLE, LOOK FOR THE

ECONOMICS 11 COURSE OUR CLASS.

Nov. 19, 2010 Lecture #4 2

LECTURE #4:

ECONOMIC GROWTH; THREE

FUNDAMENTAL ECONOMIC LAWS

FROM LAST LECTURE

TECHNOLOGICAL CHANGE

PRODUCTION POSSIBILITY FRONTIER

SOME PRINCIPLES OF ECONOMIC

GROWTH

INTRODUCTION: THREE

FUNDAMENTAL LAWS OF ECONOMICS

Nov. 19, 2010 Lecture #4 3

THE PRODUCTION FRONTIER

FOOD

CLOTHING

0 e

ab

c

d

The Production Possibility Frontier is the curved line traced by

points a, b, c, d, eat full employment.Any point inside the schedule ispossible, butresources are not fully employed.

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GROWTH OF PPF

OVER TIME (#1)

A countrysproductionpossibility frontier can expand (or

grow) over time.

This means either improving

technology and growth in the

resources used in production.

Nov. 19, 2010 Lecture #4 5

FOOD PRODUCTION BECOMES TWICE MORE PRODUCTIVE.PPF SCHEDULE SHIFTS OUTWARD. MORE POINTS

OUTSIDE OF OLD PPF ARE NOW POSSIBLE.

THE PRODUCTION FRONTIER (D)

FOOD

CLOTHING

0

GROWTH OF PPF

OVER TIME

THEREFORE MEANS

EXPANSION OF

PRODUCTIVE

CAPACITY

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BUT SUPPOSE THE PPF

SHIFTSINWARD? (#2)

It means the PPF or productivecapacity declines.

This could arise from:

oDecline of resources (labor and

capital, etc.) or inputs arising from

MAJOR DESTRUCTIVE events

BUT SUPPOSE THE PPF

SHIFTS INWARD? (#2)

Decline of inputscan be due to

oNatural disasters

oWars

oReduction of investments

oReduction of labor throughmigration

oLoss of land territory

GROWTH OF PPF

OVER TIME: EXAMPLES (#3)

Example #1: Balanced growth

Example #2: Unbalanced

growth

Example #3: Effects of thrift

and investment on growth

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Nov. 19, 2010 Lecture #4 10A COUNTRYS PRODUCTION POSSIBILITY FRONTIER,

2010 and 2030

c10

INDUSTRY

0AGRICULTURE

INDUSTRY

2010

INDUSTRY

AGRICULTURE

2030 20 years later

c30

Nov. 19, 2010 Lecture #4 11A COUNTRYS PRODUCTION POSSIBILITY FRONTIER,

2010 and 2030

c10

INDUSTRY

0AGRICULTURE

INDUSTRY

2010

INDUSTRY

AGRICULTURE

2030 20 years later

c30

Nov. 19, 2010 Lecture #4 12

c10

c30

0

INDUSTRY

AGRICULTURE

2030

2010

EXAMPLE #1: BALANCEDGROWTH

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Nov. 19, 2010 Lecture #4 13

0

INDUSTRY

AGRICULTURE

2030

2010

EXAMPLE #1: BALANCEDGROWTH

c10

c30

Industry and Agriculture grow in the same proportion.

Nov. 19, 2010 Lecture #4 140

INDUSTRY

AGRICULTURE

2030

2010

EXAMPLE #2: UNBALANCEDGROWTH

c10

c30

Nov. 19, 2010 Lecture #4 150

INDUSTRY

AGRICULTURE

2030

2010

EXAMPLE #2: UNBALANCEDGROWTH

Industry grows faster

than Agriculture

Proportions vary as

broken rays show.

c10

c30

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Nov. 19, 2010 Lecture #4 16

EXAMPLE #3: THRIFT VS.

HIGH CONSUMPTION

Being thrifty means saving in thepresent rather than consuming

(satisfying immediate wants).

A thrifty nation saves and undertakes

investments more in the present.

The reward is a higher production

possibility frontier in the future.

Nov. 19, 2010 Lecture #4 17

HIGH LIFE VS. THRIFTY LIFE: WHO WINS LATER

0

CONSUMPTION

INVESTMENT

CONSUMPTION

INVESTMENT

C

I

C

I

Waldas: High living

country

Masinop:

Thrifty country

c10

c30

Nov. 19, 2010 Lecture #4 18

CONSUMPTION

INVESTMENT

CONSUMPTION

INVESTMENT

0I

C

I

Waldas: High living

country

Masinop:

Thrifty country

c10

c10

c30

c30

EXAMPLE #3: MASINOP WINS

2030 2030

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Nov. 19, 2010 Lecture #4 19

EXAMPLE #3: THRIFT VS.

HIGH CONSUMPTION

The nation that invests more of itscurrent output rather than consume ithas a higher PPF later in time.

Consumption (in 2030) for Masinop(high saving country) is much higherthan that of Waldas (the highconsuming country).

Diagrammatically, thePPF is muchfarther out.

Nov. 19, 2010 Lecture #4 20

PHILIPPINE LONG TERM

GROWTH PERFORMANCE

Compared to our immediate neighbors,

Philippine economic growth has lagged behind

between the 1950s to the present (2000s).

Let us view the Philippine PPF compared to

those of other countries (Taiwan, South Korea,

Hong Kong, Singapore) in a stylistic fashion.

Assume that the PPF is on an Output Per Head

basis so that big and small countries can be

easily compared on a per population basis.

Nov. 19, 2010 Lecture #4 21PRODUCTION POSSIBILITY FRONTIER, HALF CENTURY

INDUSTRY PER HEAD

AGRICULTURE PER HEAD

OUTPUT

PER HEAD

INDUSTRY PER HEAD

AGRICULTURE PER HEAD

OUTPUT

PER

HEAD

PHILIPPINES, 1950s PHILIPPINES, 2000s

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Nov. 19, 2010 Lecture #4 22PRODUCTION POSSIBILITY FRONTIER, HALF CENTURY:

TAIWAN, SOUTH KOREA, HONG KONG, SINGAPORE

INDUSTRY PER HEAD

AGRICULTURE PER HEAD

OUTPUT

PER HEAD

INDUSTRY PER HEAD

AGRICULTURE PER HEAD

OUTPUTPER

HEAD

1950s 2000s

Nov. 19, 2010 Lecture #4 23

INDUSTRY PER HEAD

AGRICULTURE PER HEAD

OUTPUT

PER HEAD

ASIAN NEIGHBORS, 2000sPHILIPPINES, 2000s

INDUSTRY PER HEAD

AGRICULTURE PER HEAD

OUTPUT

PER HEAD

PRODUCTION POSSIBILITY FRONTIER, HALF CENTURY: TAIWAN,

SOUTH KOREA, HONG KONG, SINGAPORE

NOTE: SCALE OF PPFsCORRESPOND TO SIZE OF PER

CAPITA OUTPUT

Nov. 19, 2010 Lecture #4 24

WE WILL LEARN MORE ABOUT THE REASONS

FOR THE PHILIPPINE LAG IN ECONOMIC

PERFORMANCE LATER.

The relative scales of the PPFs indicate the PERCAPITA OUTPUT OF THE COUNTRIESCOMPARED.

The smaller PPF (for the Philippines) indicates thatFilipinos in their home land do not produce as muchof industrial and agricultural output per head as thecitizens of other countries being compared.

The average South Korean, Taiwanese, Hong Kongand Singapore residents have a much highercommand over goods (many times over) compared tothe average Filipino because the former work inmore productive economies.

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Nov. 19, 2010 Lecture #4 25

TOPIC 3: THREE

FUNDAMENTAL LAWS OF

ECONOMICS TO EXPLAIN

DEMAND

SUPPLY

COMMERCE OR TRADE

Nov. 19, 2010 Lecture #4 26

LAWS OF CONSUMPTION

THE LAW OF DIMINISHING

MARGINAL UTILITY

To explain how

the demand for goodsis determined.

Nov. 19, 2010 Lecture #4 27

LAWS OF PRODUCTION

THE LAW OF DIMINISHING

(MARGINAL) RETURNS

To explain how

the supply of goodsis determined.

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Nov. 19, 2010 Lecture #4 28

LAWS OF SPECIALIZATION

IN PRODUCTION

THE LAW OF COMPARATIVE

ADVANTAGE

To explain how regions and countries

choose the goods that they produce.

CONSUMPTION AND

SATISFACTION

Consumption is the act of using

goods for immediate satisfaction.

We can measure

UTILITY OR SATISFACTION.

Nov. 19, 2010 Lecture #4 30

154

165

133

102

61

00

TOTAL

SATISFACTION

(Utility)

Quantity

consumed

TABLE 3-1.

TOTAL UTILITY

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Nov. 19, 2010 Lecture #4 31

0

16

14

12

10

8

6

4

2

Quantity consumed

GRAPH OF TOTAL UTILITY

154

165

133

102

61

00

TUQ

0

16

14

12

10

8

6

4

2

Total Utility (TU)

1 2 3 4 5Quantity consumed

0

16

14

12

10

8

6

4

2

Nov. 19, 2010 Lecture #4 32

1 2 3 4 50

16

14

12

10

8

6

4

2

Quantity consumed

Total Utility (TU)

GRAPH OF TOTAL UTILITY

154

165

133

102

61

00

TUQ

MARGINAL UTILITY

The additional satisfaction

derived from the consumption

of the last unit.

MU of last unit = TU of last

unit minus TU of previous unit

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Nov. 19, 2010 Lecture #4 34

?154

?165

?133

?102

?61

00

MARGINAL

UTILITY

(MU)

TOTAL

SATISFACTION

(Total Utility)

Quantity

consumed

TABLE 3-1.

TOTAL AND MARGINAL UTILITY

MU1= TU1 TU0 = 6 MU4= TU4 TU3 = 2

Nov. 19, 2010 Lecture #4 35

2154

1165

3133

4102

661

00

MARGINAL

UTILITY

(MU)

TOTAL

SATISFACTION

(Total Utility)

Quantity

consumed

TABLE 3-1.

TOTAL AND MARGINAL UTILITY

MU1= TU1 TU0 = 6 MU4= TU4 TU3 = 2

Nov. 19, 2010 Lecture #4 36

1 2 3 4 50

16

14

12

10

86

4

2

Quantity consumed

Total Utility (TU), w/ MU shown

GRAPH OF TOTAL UTILITY, with MU shown

MU is the darker

gray shade.

2154

1165

3133

4102

661

00

M

UTUQ

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Nov. 19, 2010 Lecture #4 37

1 2 3 4 50

16

14

12

10

8

6

4

2

Quantity consumed

Total Utility (TU), w/ MU shown

GRAPH OF TOTAL UTILITY, with MU shown

MU is the darker

gray shade.

2154

1165

3133

4102

66100

M

UTUQ

Nov. 19, 2010 Lecture #4 38

1 2 3 4 50

16

14

12

10

8

6

4

2

Quantity consumed

MARGINAL UTILITY (MU)

GRAPH OF MARGINAL UTILITY

Nov. 19, 2010 Lecture #4 39

End of todays lecture.

Good day![Lecture 4]