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ecqecq4 10410
The Problem.
How to organise Productionand Consumption of goods
and services?
Scarcity
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ecqecq4 10410 Choice
A consequence of scarcity
Compare
Costs Benefits
Rational choice maximizesbenefit relative to cost
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ecqecq4 10410
Microeconomic Problems
Choices
Rational economic decisionmaking
Opportunity cost
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Macroeconomic Problems
Growth
U
nemployment Inflation
International Trade - Balance of
Payments problems
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Workshop Activityecqecq1 101 10
Imagine that you won
millions of pesos on theLottery. Would your`economic problem' be
solved?
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Workshop Activityecqecq1 101 10
Imagine that you won millions of pesoson the Lottery. Would your `economic
problem' be solved?
It would not be solved. Many things would still
be scarce. For example, you would still haveonly a finite amount of time to enjoy what themoney could buy: there are only 24 hours ina day, and we do not live for ever.
8/8/2019 lecture- economic problem LATEST
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Workshop Activityecqecq1 101 10
You should weigh up whether the extra pay(benefit) from the better paid job is worththe extra hardship (cost) involved in doing it..
Assume that you are looking for a job andare offered two. One is unpleasant to dobut pays more. How would you make a
RATIONAL choice between the two?
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ecqecq4 10410
Opportunity Cost
The cost of any activity measured
in terms of the best alternativeforgone
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ecqecq4 10410 Illustrating choice &
opportunity cost
The Production
Possibility Curve
0
Rice
Peas
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ecqecq4 10410 Illustrating choice &
opportunity cost
Rice
Peas0
Productionpossible
y
x
not allresources
used
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ecqecq4 10410 Illustrating choice &
opportunity cost
0x
Productionboundary
y1
x
All resourcesare used
Rice
Peas
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ecqecq4 10410 Illustrating choice &
opportunity cost
0
Possiblechoices
y1
y2
x2
x1
Rice
Peas
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ecqecq4 10410
Economic reasoning
Economicmethodologyconstructs
theories ormodels
Compare withnatural sciences
(physics)
Used toexplain or
predict
Problems of aSocial Science
Controlled
experiments notpossible
Human behaviorunpredictable
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ecqecq4 10410 Statements about the
economy
Statement offact
Statement of whatis desirable, oughtto be or what is
good or bad
Positive Normative
either
Statement offactMay be tested
Statement offactMay be tested
The statementmay be true orfalse
Statement of whatis desirable, oughtto be or what is
good or badNot testable
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ecqecq4 10410
Workshop Activityecqecq1 101 10
Is the statement below Positive, orNormative or could it be either?
It is wrong that inflation should bereduced if this means that there willbe higher unemployment. .
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ecqecq4 10410
Workshop Activityecqecq1 101 10
Is the statement below Positive, orNormative or could it be either?
Current Government policies
should reduce unemployment .
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ecqecq4 10410
Workshop Activityecqecq1 101 10
Is the statement below Positive, orNormative or could it be either?
Cutting the higher rate of incometax will redistribute incomes fromthe poor to the rich.
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Summary
Finiteresources
Scarcity
Choices
OpportunityCost
Subjective -
difficult to value
Costs
Benefits
compare