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Chapter 2 Powerpoint - Slides
Principles Of Economics I: Microeconomics (ECO 110)
University at Albany
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Seventh Edition Macroeconomics N. Gregory Mankiw CHAPTER 2 Thinking Like an Economist 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. Wojciech Gerson Principles of In this chapter, look for the answers to these questions What are two roles? How do they differ? What are models? How do economists use them? What are the elements of the Diagram? What concepts does the diagram illustrate? How is the Production Possibilities Frontier related to opportunity cost? What other concepts does it illustrate? What is the difference between microeconomics and macroeconomics? Between positive and normative? 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. Assumptions Models Assumptions simplify the complex world, make it easier to understand. Example: To study international trade, assume two countries and two goods. Unrealistic, but simple to learn and gives useful insights about the real world. Model: a highly simplified representation of a more complicated reality. Economists use models to study economic issues. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 3 Some Familiar Models A road map 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 4 Some Familiar Models 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. A model airplane 6 Some Familiar Models The model teeth at the office forget to floss! 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 7 Factors of Production Factors of production: the resources the economy uses to produce goods services, including labor land capital (buildings and machines used in production) 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 9 FIGURE 1: The Diagram Households: Own the factors of production, them to firms for income Buy and consume goods services Firms Households Firms: factors of production, use them to produce goods and services Sell goods services 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 10 Our Second Model: The Production Possibilities Frontier The Production Possibilities Frontier (PPF): a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology Example: Two goods: computers and wheat One resource: labor (measured in hours) Economy has labor hours per month available for production. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 12 PPF Example Producing one computer requires 100 hours labor. Producing one ton of wheat requires 10 hours labor. Employment of labor hours Production Computers Wheat Computers Wheat A 0 500 0 B 400 C 250 2,500 D 100 E 0 0 ACTIVE LEARNING 1 Points off the PPF A. On the graph, find the point that represents (100 computers, tons of wheat), label it F. Would it be possible for the economy to produce this combination of the two goods? Why or why not? B. Next, find the point that represents (300 computers, 3500 tons of wheat), label it G. Would it be possible for the economy to produce this combination of the two goods? 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. ACTIVE LEARNING Answers Point F: 100 computers, tons wheat Point F requires hours of labor. Possible but not efficient: could get more of either good sacrificing any of the other. 1 Wheat (tons) F 0 0 100 200 300 400 500 600 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. Computers The PPF: What We Know So Far Points on the PPF (like A E) possible efficient: all resources are fully utilized Points under the PPF (like F) possible not efficient: some resources underutilized (e., workers unemployed, factories idle) Points above the PPF (like G) not possible 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 18 The PPF and Opportunity Cost Recall: The opportunity cost of an item is what must be given up to obtain that item. Moving along a PPF involves shifting resources (e., labor) from the production of one good to the other. Society faces a tradeoff: Getting more of one good requires sacrificing some of the other. The slope of the PPF tells you the opportunity cost of one good in terms of the other. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a website for classroom use. 19
Chapter 2 Powerpoint - Slides
Course: Principles Of Economics I: Microeconomics (ECO 110)
University: University at Albany
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