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Chapter 1

Limits, Alterna.ves,
and Choices

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Chapter Objectives

LO1

Economics dened
Microeconomics vs. macroeconomics
Role of economic theory
Produc<on possibili<es model

1-2

Economics
Problems
Economic wants exceed societys produc<ve
capacity
Economics
A social science concerned with making
op<mal choices under condi<ons of scarcity

LO1

1-3

The Economic Perspective


Thinking like an economist
Scarcity and choice
Opportunity cost
Purposeful behavior to increase u.lity
Marginal analysis

LO1

1-4

Scarcity and Choice


Resources are scarce
Choices must be made
Opportunity cost
Theres no free lunch

LO1

1-5

Purposeful Behavior

LO1

Ra<onal self-interest
Individuals and u<lity
Firms and prot
Desired outcome

1-6

Marginal Analysis

LO1

Marginal benet
Marginal cost
Marginal means extra
Comparison between marginal benet and
marginal cost

1-7

Micro and Macro


Microeconomics
The study of the individual consumer, rm,
or market
Macroeconomics
The study of the en<re economy or a major
aggregate of the economy

LO3

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Theories, Principles, and Models


Generaliza<ons
Assump.ons
Ceteris paribus - Other-things-equal
Graphical expression
Example?

LO2

1-9

Societys Economizing Problem


4 categories of economic resources
Land
Labor
Capital
Investment
Entrepreneurial ability

LO5

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Societys Economizing Problem


Entrepreneurs
Employs the resources
Takes ini<a<ve
Makes strategic business decisions
Innovates
Takes risk

LO5

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Production Possibilities Model


Economic model that shows dierent
combina<ons of two goods that an economy
can produce
Full employment
Fixed resources
Fixed technology
2-good economy
Consumer goods and capital goods
LO6

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Production Possibilities Model


Produc.on Alterna.ves
A

Pizzas

Industrial Robots

10

Type of Product

(in hundred thousands)

(in thousands)

Plot the points to create the graph


LO6

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Production Possibilities Graph

Industrial robots

LO6

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

UnaTainable

W
C

D
ATainable
E
0 1 2 3 4 5 6 7 8 9

Pizzas

Q
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A Growing Economy
Produc.on Alterna.ves
A'

B'

C'

D'

E'

Pizzas

Industrial Robots

14

12

Type of Product

(in hundred thousands)

(in thousands)

LO7

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Unemployment, Growth, & the


Future

Industrial robots

Economic growth

LO7

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

A
B

UnaTainable

A
B

C
C
D
D

Now aTainable

ATainable
E
0 1 2 3 4 5 6 7 8 9
Pizzas

E
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The Future Economy

Consequences of unemployment
Economic growth
More resources
Be`er quality resources
Technological advances
Specializa<on and interna<onal trade
LO7

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Future
Curve

Current
curve

Goods for the present

Presentville
LO7

Goods for the future

Goods for the future

Present Choices, Future


Possibilities

Future
Curve

Current
curve

Goods for the present

Futureville
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