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Copyright 2008 The McGraw-Hill Companies1-1

Chapter ObjectivesEconomicPerspectiveTheoriesPrinciples andModelsMacro andMicroeconomics

IndividualsEconomizingProblemSocietys

EconomizingProblemProductionPossibilities ModelUnemployment,

Growth, and theFutureLast Word

Key Terms

End Show

1

Limits,

Alternatives,and Choices

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Chapter Objectives

Economics DefinedEconomic Perspective

Role of Economic Theory

Microeconomics andMacroeconomics

Scarce ResourcesThe Economizing Problem

Production Possibilities

O 1.1
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The Economic Perspective

Scarcity and ChoiceOpportunity Cost

Purposeful BehaviorUtility

Marginal Analysis

Marginal Benefits

Marginal Costs

O 1.2

O 1.3
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Theories Principles and Models

The Scientific Method Economic Principle

GeneralizationsOther-Things-Equal

Assumption (ceteris

par ibus)

Graphical Expression

O 1.4
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Macro and Microeconomics

MacroeconomicsAggregate

MicroeconomicsIndividual Units

Positive Economics Normative Economics

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Individuals EconomizingProblem

Limited Income

Unlimited Wants

A Budget Line

Attainable and UnattainableCombinations

Tradeoffs & Opportunity

Costs Choice

Income Change

O 1.5

W 1.1
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Key Terms

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Individuals EconomizingProblem

6

543

210

0

246

81012

DVDs$20

Books$10

12

10

8

6

4

2

02 4 6 8 10 12 14

$120 Budget

Income = $120

Pdvd= $20

= 6

Income = $120

Pb= $10

= 12

Attainable

Unattainable

Quantity of Books

QuantityofDVDs

S i E i i

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Societys EconomizingProblem

Scarce Resources Resource Categories

Land

Labor

Capital

InvestmentEntrepreneurial Ability

Factors of Production

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Production Possibilities Model

Full Employment Fixed Resources

Fixed Technology

Two GoodsConsumer Goods

(Pizzas)Capital Goods

(Industrial Robots)

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Production Possibilities Table

Type of Product

Pizzas(in hundred thousands)

Industrial Robots(in thousands)

Production Alternatives

A B C D E

10 9 7 4 0

0 1 2 3 4

Plot Points to Create Graph

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Pizzas

IndustrialRob

ots

Attainable

0 1 2 3 4 5 6 7 8 9

1413

12

11

10

9

8

7

6

5

4

32

1

Unattainable

A

B

C

D

E

Economic

Growth

Now Attainable

A

B

C

D

E

Production Possibilities Curve

G 1.1
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Pizzas

IndustrialRobots

Attainable

0 1 2 3 4 5 6 7 8 9

1413

12

11

10

9

8

7

6

5

4

32

1

Unattainable

A

B

C

D

E

Law of Increasing

Opportunity Cost

A

B

C

D

E


Shape ofthe Curve

W 1.2
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Chapter ObjectivesEconomicPerspectiveTheoriesPrinciples andModelsMacro andMicroeconomicsIndividuals

EconomizingProblemSocietys



Key Terms

End Show


Pizzas

IndustrialRobots

Under orUnemployment

0 1 2 3 4 5 6 7 8 9

1413

12

11

10

9

8

7

6

5

4

32

1

Unattainable

A

B

C

D

E


U

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15

10

5

0 1 2 3

a

b

c

d

e

MB = MC

MC

MB

Optimal Allocation of Resources

Quantity of Pizza

Margi

nalBenefit&M

arginalCost

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Unemployment Growthand the Future

A Growing Economy Economic Growth

Increasing ResourceSupplies

Increasing ResourceQuality

Technological Advances

P t Ch i & F t

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Present Choices & FuturePossibilities

Goods for the Present

GoodsfortheFuture

GoodsfortheFuture

Goods for the Present

Presentville Futureville

P

F

CurrentCurve

CurrentCurve

FutureCurve

FutureCurve

Compare Two Hypothetical Economies

Implications of International Trade

G 1.2
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