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

Two-Variable Diagram Representing a Direct Relationship

Two Diagrams Representing Independence between Two Variables

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

Calculating Slopes

The 45 Line

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

Chapter 2 Economic Activities: Producing and Trading

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

Production Possibilities Frontier for Grades

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)

Production Possibilities Frontier (Constant Opportunity Costs)

Second Type of PPF Changing Opportunity Costs BOWED OUT PPF Real world PPF Changing slope with every point

Production Possibilities Frontier (Changing Opportunity Costs)

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