1. BU-204 Macro Economics – Week 2 Seminar Welcome to

2. Overview  Welcome  Review of Week 1 Material  Questions  Unit 2 Material  Questions  Preview of Unit 3  End

3. Review of Unit 1  Scarcity  Opportunity Cost  Trade-Offs  Cost/Benefit  Marginal Cost Analysis

4.  Limited resources  Choices must be made  Opportunity Cost  The value of the next best alternative  Marginal analysis Scarcity

5. Opportunity Cost Retrieved from http://strom.clemenson.edu Retrieved from www.stus.com

6. Example of cost of education  Annual salary - $50,000 (Implicit)  Tuition - $25,000 (Explicit)  2 years of graduate school - $100,000 in salary and $50,000 in tuition  Total opportunity cost - $150,000 (Implicit & Explicit)  Future marginal income of working life should be higher Opportunity Cost

7. Trade offs Cost vs. Benefits

8. Marginal Cost Analysis  Efficiency in resource allocation  Analysis of benefits and costs of the marginal unit of good or input  Maximization of utility subject to a budget contraint

9. Questions

10. Overview  Welcome  Review of Week 1 Material  Questions  Unit 2 Material  Questions  Preview of Unit 3  End

11. Unit 2 Material  Economic Model  Production Possibilities Frontier  Comparative vs. Absolute Advantage  Circular Flow Diagram  Homework Assignment  Discussion Question

12. Economic Model

35. Unit 2 Material  Economic Model  Production Possibilities Frontier  Comparative vs. Absolute Advantage  Circular Flow Diagram  Homework Assignment  Discussion Question

50. Unit 2 Material  Economic Model  Production Possibilities Frontier  Comparative vs. Absolute Advantage  Circular Flow Diagram  Homework Assignment  Discussion Question

60.  The simplest circular-flow model shows the interaction between households and firms. In this model, firms supply goods and services to households which, in turn supply factors of production to firms  Which of the following is a normative statement? We would all be better off it we could reduce our dependence on oil imports Summary Points

61. Reliance on finite supplies of foreign oil and on coal fired electric power plants causes ever increasing prices that we must pay for the oil and the deleterious effects on our environment from both as sources of greenhouse gasses contributing to global warming. There are several renewable sources of energy available to the world. These include: 1. Wind power (both large scale wind turbines and household sized roof mounted wind turbines to co-generate electricity) Discussion

62. 2. Solar water heating (roof mounted solar collectors) 3. Solar photovoltaic electric generation (solar cells mounted on roofs to co-generate electricity) 4. Ocean wave generation of electricity 5. In transportation, the development of all electric and hybrid electric cars Discussion

63. Positive vs. Normative Statements Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing. Assignment

64. Positive vs. Normative Statements Referring to the same situation in question 1, but instead of legislation banning the imports, assume that the government enacts a special tax on imported clothing that is so high that the selling price of the imports would be equal to the selling price of the same clothing made in America. This kind of tax is called a tariff and is enacted to protect domestic producers of the same items that can be imported at much lower costs. Assignment

65. A growing economy means that the economy is producing more and more “stuff”, either because it has more resources (workers), or uses those resources more productively (smarter, better workers, working with better machines and systems). A growing economy that produces more and more “stuff” normally means that the people have a higher and higher standard of living. Assignment

66. If the government adopts a “free trade” policy towards all imports, including the low cost clothing of question 1 and 2, in which it places no barriers to importing items, can that action help the economy to grow? Explain your answer. (10 points) Assignment

67. Thank you for attending. I look forward to seeing you next week!