Macro Chapter 1 Presentation 3

Quick Check #1

• The idea that the limited amount of resources are never sufficient to satisfy people’s virtually unlimited economic wants is known as ____________

• Scarcity

#2 Define Opportunity Cost

• To obtain one more of one thing, society must forgo the opportunity of getting the next best thing

Quick Check #3

• The pleasure, happiness or satisfaction obtained from consuming a good or service is known as ____________

• Utility

Quick Check #4

• Define Marginal

• “extra,” “additional,” one more, or “change in”

Unemployment and Underemployment

• Represented by points inside the PPC

• Not all resources are being utilized

• ***underemployment ex- a lawyer working in retail

Shifts in the PPC

1. Increase in resource supplies- expanded potential output (ie new oil wells)

2. Advances in technology- Ex) computers increase speed and efficiency

Economic Growth

• An increase in total output

Production Possibilities Model

15

10

5

0 1 2 3

a

b

c

d

e

MB = MC

MC

MB

Optimal Allocation of Resources

Quantity of Pizza

Mar

gin

al B

enef

it &

Mar

gin

al C

ost

Budget Line (Constraint)

• The schedule or chart that shows various combinations of two products a consumer can buy with a given amount of money

Budget Line

6543210

02468

1012

DVDs$20

Books$10

12

10

8

6

4

2

02 4 6 8 10 12 14

$120 Budget

Income = $120

Pdvd = $20= 6

Income = $120

Pb = $10= 12

Attainable

Unattainable

Quantity of Books

Qu

anti

ty o

f D

VD

s

Positive Economics (“What is”)

• Focuses on facts and cause-and-effect relationships. Avoids value judgments and tries to establish scientific statements about economic behavior and what the economy is actually like. (Positive about it)

• Ex- The unemployment rate in France is higher than in the US

Normative Economics (“What ought to be”)

• Incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal

• Ex- France should undertake policies to make its labor market more flexible to reduce unemployment

Factors of Production (Inputs)

• 1. Land

• 2. Labor

• 3. Capital

• 4. Entrepreneurial Ability

Land

• Includes all natural resources (“gifts of nature”) used in the production process, such as arable land, forests, mineral and oil deposits, and water resources

Labor

• The physical and mental talents of individuals used in producing goods and services

Capital

• All manufactured aids used in producing consumer goods and services.

• Ex- factory, storage, transportation, and distribution facilities, tools and machinery

Entrepreneurial Ability

• Combines the resources of land, labor and capital to produce a good or service

• Innovator of new products

• Bears the financial risk of business

Present Choices & Future Possibilities

Goods for the Present (consumer)

Goo

ds f

or t

he F

utur

e (C

apita

l)

Goo

ds f

or t

he F

utur

e (C

apita

l)

Goods for the Present (consumer)Presentville Futureville

P

F

CurrentCurve

CurrentCurve

FutureCurve

FutureCurve

Compare Two Hypothetical EconomiesG 1.2