Presentation on theme: " Economics is defined as the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants."— Presentation transcript:
Economics is defined as the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants. The study of economics explains how productive resources are used to provide the goods and services that satisfy human wants and needs.
Scarcity is the fundamental economic problem facing all societies. We have limited resources and unlimited needs and wants. Economic wants exceed productive capacity. Resources are scarce and choices must be made.
Land (natural resources) Labor (human resources) Capital (equipment, machinery) Entrepreneurship(takes initiative, make decisions, innovates and takes risks.)
What goods and services will be produced? How will goods and services be produced? Who will consume the goods and services? (How should it be shared?)
Economics is considered a social science. Why? What do economists do? What is the difference between microeconomics and macroeconomics?
Microeconomics examines decision making by individual units. Macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates. Positive economics deals with economic facts, i.e. “the unemployment rate is 9.8%.” Normative economics is a subjective perspective of the economy, i.e. “the unemployment rate is too high.”
Theories, Principles, and Models The scientific method Economic principles Generalizations Other-things-equal assumption Graphical expression Observe Formulate a hypothesisTest the hypothesis Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary LO2 1-11
Theoretical economics helps economists use facts to analyze and explain the economy and develop policies. Economic policies are designed to explain a number of economic goals including: economic growth, full employment, economic efficiency, price-level stability, economic freedom, equitable distribution of income, economic security and balance of trade.
A Production Possibilities Curve (PPC) illustrates production choices and assumes: Full employment Fixed resources Fixed technology Two goods. Limited or fixed resources means that at any point in time, a full-employment, full production economy must sacrifice some of product X to obtain more of product Y.
Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES
Applications... Unemployment and Productive Inefficiency Tradeoffs and Opportunity Costs PRODUCTION POSSIBILITIES
P Q Marginal Benefit & Cost Quantity of Pizzas $15 10 5 1 2 3 Marginal Cost/Marginal Benefit Analysis MC MB Allocative Efficiency: MB=MC MB=MC