micro economics chapter 01

1 Limits, Alternatives, and Choices McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc All rights reserved Introduction • LO1 Economics defined: • Economic wants exceed productive capacity • Use resources efficiently to maximize fulfillment of unlimited wants The Economic Perspective • Key features: • • • LO1 Scarcity and choice Purposeful Behavior Marginal Analysis Scarcity and Choice • • • Resources are scarce Choices must be made Opportunity cost • LO1 There’s no free lunch Purposeful Behavior • • • • LO1 Rational self-interest Utility Desired outcomes Selfless good deed Marginal Analysis LO1 • Compare marginal benefit and marginal cost • Marginal means “extra” Theories, Principles, and Models • LO2 Economic principles and theories • • Generalizations, so imprecise • Statements of economic behavior supported by facts Ceteris Paribus: Other-thingsequal assumption • Microeconomics and Macroeconomics Microeconomics • • Macroeconomics • • LO3 Decision making by individual units Aggregate, total Economic speak Positive and Normative Economics • Positive economics • • Normative economics • LO3 Deals with economic facts Subjective perspective of economy • Society’s Economizing Problem Scarce resources – inputs used to produce other goods and services • • • Land – natural resources Labor – most workers Capital – manufactured inputs • • LO4 Not money Investment – spending on production & accumulation of capital Society’s Economizing Problem • Entrepreneurial ability • • • • • LO4 Takes initiative Decision maker Innovator Takes risk Key to economic growth Production Possibilities Model • Shows maximum combinations of goods that can be produced when the economy is efficient • LO5 Assumptions: • • • • Full employment Fixed resources Fixed technology Two goods Production Possibilities Table Production Alternatives Type of Product Pizzas A B C D E 10 (in hundred thousands) Industrial Robots (in thousands) Plot Points to Create Graph… LO5 A Growing Economy • Economic Growth • • • LO6 More resources Improved resource quality Technological advances International Trade • • LO6 Specialization Increased production possibilities ... • Microeconomics and Macroeconomics Microeconomics • • Macroeconomics • • LO3 Decision making by individual units Aggregate, total Economic speak Positive and Normative Economics • Positive economics. ..Introduction • LO1 Economics defined: • Economic wants exceed productive capacity • Use resources efficiently to maximize... Aggregate, total Economic speak Positive and Normative Economics • Positive economics • • Normative economics • LO3 Deals with economic facts Subjective perspective of economy • Society’s Economizing