Chapter 1 What is Economics About

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# Chapter 1 What is Economics About - PowerPoint PPT Presentation

Chapter 1 What is Economics About. Appendix A. Working with Diagrams. Types of Relationships between variables. Direct Positive Inverse Negative No Relationship Variables are independent. Two-Variable Diagram Representing an Inverse Relationship.

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### Appendix A

Working with Diagrams

Types of Relationships between variables
• Direct
• Positive
• Inverse
• Negative
• No Relationship
• Variables are independent
Slope
• Used to see how a variable changes in response to another variable changing
To calculate slope
• Find two points on any straight line
What sign do you expect the slope to have?
• Direct relationship
• Positive
• Inverse relationship
• Negative
• No Relationship
• 0 or infinity
Homework
• Chapter 1
• Questions 4, 5, 7, 8
• Chapter 1 Appendix
• Questions 6, 7, 9

### In-class exercise 1

Do we understand Chapter 1?

### Appendix B

Should you major in Economics??

Five myths about economics and an economics major
• Economics is all mathematics and statistics
• Economics is only about inflation, interest rates, unemployment, and other such things
• People become economists only if they want to “make money”
• Economics wasn’t very interesting in high school, so it isn’t going to be interesting now
• Economics is a lot like business, but business is more marketable
Efficiency
• Efficiency of Production is goal
• If a firm is producing the max possible given available resources and technology
Production Possibility Frontier(PPF)
• Shows all possible combinations of goods for a particular economy at a particular point in time, given its resources and technology constraints
Where are we on the PPF?
• Can we be on the PPF?
• Yes!
• efficient
• Can we be under the PPF?
• Yes!
• Inefficient
• Can we be over the PPF?
• NO
Two types of Production Possibility Frontiers

Constant Opportunity Costs

• STRAIGHT LINE
• DOWNWARD SLOPED (inverse relationship)
• 1 to 1 relationship (slope constant)
Second Type of PPF

Changing Opportunity Costs

• BOWED OUT PPF
• Real world PPF
• Changing slope with every point
Law of Increasing Opportunity Costs
• Goes along with CHANGING OPPORTUNITY COSTS
• As more of a good is produced the opportunity cost to produce that good increases.
A Summary Statement about Increasing Opportunity Costs and a Production Possibilities Frontier That Is Bowed Outward (Concave Downward)
Economic Concepts illustrated by PPF
• Scarcity
• Choice
• Opportunity Costs
• Law of Increasing Opportunity Costs