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ECONOMICS
Chapter Objectives
Economics defined
Microeconomics vs. macroeconomics
Positive vs normative economic statements
1-2
Economics
A social science that studies about human
behavior in how they produce, distribute, and
consume goods and services in the world of
scarce resources to satisfy human unlimited
wants.
Production?
Distribution?
Consumption?
Resources? Scarce?
Human wants? Unlimited human wants?
Branches of Economics
Microeconomics
A study of economics at specific economic
units.
Examples: household, firms, government,
sector of economy, industry.
Macroeconomics
A study of economics as a whole or in
aggregate.
Examples: inflation, GDP, unemployment,
income distribution
Economic methodology
Developing hypothesis
Observing and collecting
real-world data
Theoretical economics
POLICY ECONOMICS
Induction
- The process where
theories are established
after data are collected
or proven by facts.
THEORIES
FACTS
Deduction
- The process where
theories are established
prior/earlier to data
collection.
Terminologies
Generalizations
all theories, principles and laws are generalizations
relating to economic behavior.
Or
Abstractions
all theories, principles and laws are abstractions or
simplifications that omit irrelevant facts and
circumstances. behavior.
Normative Economics
Looks at the desirability of certain aspects of the economy.
Concer with what ought/should be.
It underlies expressions of support for particular economic
policies.
It involves value judgment.
Examples
POSITIVE
NORMATIVE
to undertake policies to
reduce the unemployment
problem.
Causation Fallacies
Post Hoc Fallacy or after this, therefore because of this fallacy
Thinking that; event A precedes event B, or A is the cause of B.
Example: Education level and Y-level.
Economics
Economics:
Is a social sc. that studies about human behavior in how they
produce, distribute and consume goods and services in a world of
scarce resource.
1-13
Scarcity
What is Scarcity?
An economizing problem in which resources are
limited (scarce) while human wants are unlimited.
Scarce (limited) resources/Factors of production
Land
Labor
Capital
Entrepreneurial Ability
1-14
Discussion
Is it true resources are scarce?
YES? NO?
Provide your justification
1-16
1-18
Pizzas
10
Industrial Robots
A
B
Unattainable
Production point outside the
PPC: is unattainable due to
limited resources and production
capacity.
Attainable
Production point below the PPC:
is attainable but is considered as
Under or Unemployment
X
E
0
8 9
Pizzas
Q: What are the Consequences of unemployment?
1-20
Industrial Robots
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
B
A
B
C
C
Attainable
D
E
0
8 9
Pizzas
1-21
Industrial Robots
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
B
A
B
C
C
D
Attainable
D
E
0
8 9
Pizzas
1-22
1-23
Future
Curve
Current
Curve
Presentville
Future Possibilities
Future
Curve
F
Current
Curve
Futureville
1-24
EXERCISES
(a) The inflation rate in the United States hit its lowest level in the
last twenty years.
(b) The profits of Microsoft rose 20 percent during the past quarter.
(c) Rains from El Nino again hit the California region causing severe
flooding in farms. The prices for citrus and produce are expected to
rise sharply.
(d) The nations economy grew at an annual rate of 3.7 percent in
the final quarter of the year.
(e) The trade deficit in the United States was $20 billion last month.
(f) General Motors plans to spend $800 million on a new
automobile plant.
Grain
(metric tons)
Airplanes
(1,000s)
B
C
D
E
F
G
H
14
26
36
44
50
54
56
6
5
4
3
2
1
0
Combination
ANSWERS: