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Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys

Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

1
Limits, Alternatives, and Choices
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Key Terms End Show 1-1

Chapter Objectives
Economics Defined
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Economic Perspective

O 1.1

Role of Economic Theory Microeconomics and Macroeconomics Scarce Resources


The Economizing Problem

Key Terms End Show 1-2

Production Possibilities
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The Economic Perspective


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Scarcity and Choice


Opportunity Cost

Purposeful Behavior
Utility
O 1.2

Marginal Analysis
Marginal Benefits Marginal Costs
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O 1.3

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Theories Principles and Models


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

The Scientific Method Economic Principle


Generalizations Other-Things-Equal Assumption (ceteris paribus) Graphical Expression
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O 1.4

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Macro and Microeconomics


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Macroeconomics
Aggregate

Microeconomics
Individual Units

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Positive Economics Normative Economics


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Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Key Terms End Show 1-6

Individuals Economizing Problem Limited Income Unlimited Wants A Budget Line Attainable and Unattainable Combinations Tradeoffs & Opportunity Costs Choice Income Change

O 1.5

W 1.1

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Individuals Economizing Problem


GLOBAL PERSPECTIVE
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Average Income, Selected Nations


Country Switzerland United States Japan France South Korea Mexico Brazil China Pakistan Nigeria Rwanda Liberia
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Key Terms End Show 1-7

Per Capita Income 2004 $48,230 41,400 37,180 30,090 13,980 6,770 3,090 1,290 600 390 220 110
Source: World Bank

Individuals Economizing Problem


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

$120 Budget
DVDs Books $20 $10

12 10
Income = $120 Quantity of DVDs

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6 5 4 3 2 1 0

0 2 4 6 8 10 12

8 6 4 2 0

Pdvd = $20

=6

Unattainable

Income = $120 Pb = $10

= 12

Attainable

Quantity of Books

10

12

14

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Societys Economizing Problem


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Scarce Resources Resource Categories


Land Labor Capital
Investment

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Entrepreneurial Ability

Factors of Production
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Production Possibilities Model


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Full Employment Fixed Resources Fixed Technology Two Goods


Consumer Goods (Pizzas) Capital Goods (Industrial Robots)
Copyright 2008 The McGraw-Hill Companies

Key Terms End Show 1-10

Production Possibilities Model Production Possibilities Table


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Production Alternatives

Type of Product

A 0

B 1

C 2

D 3

E 4

Pizzas
(in hundred thousands)

Industrial Robots
(in thousands)

10

Key Terms End Show 1-11


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Plot Points to Create Graph

Production Possibilities Model Production Possibilities Curve


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

14 13 12 11 10 9 8 7 6 5 4 3 2 1
0

B
A B C C

Unattainable

G 1.1

Industrial Robots

Economic Growth
D

Attainable
E 1 2 3 4 5 6 7

Now Attainable
E 8 9

Key Terms End Show 1-12

Pizzas
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model Production Possibilities Curve


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

14 13 12 11 10 9 8 7 6 5 4 3 2 1
0

B
A B C C

Unattainable

Industrial Robots

Law of Increasing Opportunity Cost


D

Shape of the Curve


E
W 1.2

Attainable
E 1 2 3 4 5 6 7 8 9

Key Terms End Show 1-13

Pizzas
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model Production Possibilities Curve


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

14 13 12 11 10 9 8 7 6 5 4 3 2 1
0

Unattainable
C

Industrial Robots

U
D

Under or Unemployment

E 1 2 3 4 5 6 7 8 9

Key Terms End Show 1-14

Pizzas
Copyright 2008 The McGraw-Hill Companies

Production Possibilities Model


Optimal Allocation of Resources
Marginal Benefit & Marginal Cost
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

15

a
MB = MC

MC

10

d
MB

Key Terms End Show 1-15

2 3 Quantity of Pizza

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Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Unemployment Growth and the Future A Growing Economy Economic Growth


Increasing Resource Supplies Increasing Resource Quality Technological Advances
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Present Choices & Future Possibilities


G 1.2
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Compare Two Hypothetical Economies


Goods for the Future

Future Curve

Goods for the Future

Future Curve
F

Current Curve

Current Curve

Goods for the Present Presentville

Goods for the Present Futureville

Key Terms End Show 1-17

Implications of International Trade


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Pitfalls to Sound Economic Reasoning


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Key Terms End Show 1-18

Biases Loaded Terminology Fallacy of Composition Post Hoc Fallacy Correlation but not Causation
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Key Terms
Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

Key Terms End Show 1-19

economics economic perspective opportunity cost utility marginal analysis scientific method economic principle other-things-equal assumption macroeconomics aggregate microeconomics positive economics normative economics economizing problem budget line

economic resources land labor capital investment entrepreneurial ability factors of production consumer goods capital goods production possibilities curve law of increasing opportunity costs economic growth

Copyright 2008 The McGraw-Hill Companies

Next Chapter Preview


Chapter Objectives Economic Perspective Theories Principles and Models Macro and Microeconomics Individuals Economizing Problem Societys Economizing Problem Production Possibilities Model Unemployment, Growth, and the Future Last Word

The Market System and the Circular Flow

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