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slide2

Economics is

the study of how we can best increase a country’s wealth with the resources that we have available to us.

slide3

Marginal Benefit

is the additional satisfaction or value one obtains from an activity or product.

  • Marginal Cost

is the additional cost or sacrifice one makes of participating in an activity or purchasing a product.

slide4

Economic Decision-Making

You decide to participate in an activity (going to college, buying something, etc.) as long as your marginal benefit exceeds your marginal cost.

slide5

The Production Possibilities Curve

A production possibilities curve represents outcome or production combinations that can be produced with a given amount of resources.

slide6

The Production Possibilities Curve

GUNS

E

600

C

F

500

B

400

G

A

300

D

ROSES

350

500

580

700

slide7

Economic Growth

If an economy is operating at a point on the production possibilities curve, all resources are used, and they are utilized as efficiently as possible.

GUNS

E

600

C

F

500

B

400

G

A

300

D

ROSES

350

500

580

700

slide8

Economic Growth Is Caused by:

Increases in Resources

Advances in Technology

slide9

Your Own Personal PPC

If two possible outcomes in your own personal life are job earnings and educational credits, then your PPC looks as follows:

Job earnings

E

30000

C

F

23000

B

16000

G

A

12000

D

College credits

23

10

30

18

three economic systems are
Three Economic Systems are:
  • Capitalism
  • Communism
  • Socialism
slide11

Capitalism Characteristics

  • The role of the government is limited to the most essential functions.
  • All prices are determined in the free market (supply and demand).
slide12

Communism Characteristics

  • Government makes all decisions regarding production, prices, wages, interest rates, and income distribution.
slide13

Socialism (Mixed Economy) Characteristics

  • Most economic decisions are made by the private sector, but the role of the government is significant. Government spending and taxes are relatively high.
slide14

Economic Growth and Economic Systems

  • Countries with the highest overall economic standard of living have the freest markets (more elements of capitalism).
  • Examples: Hong Kong, the United States, Japan, Taiwan, Great Britain, Canada, Sweden, South Korea, and Singapore.
slide15

Economies around the World

Most industrialized countries are mixed economies, but they also have many capitalist elements. Characteristics include

  • Substantial activity in the private sector (businesses and households). Prices are determined by demand and supply.
  • A significant role by federal and local governments.
slide16

The Role of Government

The role of most governments around the world includes:

    • Spending on defense, roads, legal system, public services and education
    • Redistributing incomes through taxes and subsidies
    • Passing laws and imposingregulations
    • Implementing price controls
    • Conducting monetary policyto affect inflation,interest rates, and employment
slide17

Important Concepts and Definitions

We will discuss the following concepts:

  • The simple circular flow
  • The circular flow with government and foreign markets
  • Nominal and real prices and incomes
  • Positive and normative economic statement
  • The fallacy of composition
  • The fallacy of cause and effect
slide18

The Simple Circular Flow

Supply of Products

ProductsMarket

Purchases of (Demand for) Products

Households

Businesses

Supply of Labor and Resources

Resource(Inputs) Market

Purchases of (Demand for) Labor and Resources

slide19

The circular flow with government and foreign markets (see next slide). This is a more complex (more realistic) model.

slide20

Foreign Markets

Supply of Products

ProductsMarket

Purchases of Products

Products

Services

Services

Government

Households

Businesses

Taxes

Taxes

Resource(Inputs) Market

Supply of Labor and Resources

Purchases of (Demand for) Labor and Resources

slide21

Nominal and Real Prices

  • Nominal prices are expressed in current dollars.
  • Real prices are adjusted for inflation.

Enough money to purchase

3 gallons of gasoline a

few years ago. Not enough to purchase 2 gallonstoday.

slide22

Positive and Normative Economic Statements

  • Apositive statement can be proven or dis-proven.
  • Anormative statement is an opinion or value judgment.
slide23

Which is the Normative and Which is the Positive Economic Statement?

  • Statement I: The minimum wage should increase to $8.50.
  • Statement II: If the minimum wage increases, then firms’ cost of production rises.
slide24

The Fallacy of Composition

  • Fallacy: what is good for one person (or one group) is good for all persons (or all groups).
slide25

The Fallacy of Cause and Effect

  • Because A happens before B, A must be automatically the cause of B.
slide26

Cause and Effect Fallacy Example

A: The car industry in country X has not done well.

B: The economy of country X has not done well.

Did A cause B?

slide27

Critical Thinking Guidelines

  • Question the source.
  • Question the assumptions.
  • Question how the variables are defined.
  • Question the validity ofthe statement.
  • Question the statistics.
  • Think like an economist.
slide28

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