Economics 3rd ch01

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Economics THIRD EDITION By John B Taylor Stanford University Copyright © 2001 by H Chapter The Central Idea Copyright â 2001 by H Teaching objectives Introduce the concepts: scarcity, choice and opportunity costs • Consumers and producers must make choices • Trade between parties is mutually beneficial • Production possibilities curve – a tool to formalize the concepts of scarcity and cost • Market versus command economy Copyright © 2001 by H Scarcity, Choice and Interaction for Individuals 1a All consumers and producers must make choices because the resources used to satisfy want are limited Therefore all choices have opportunity costs – the next best alternative given up 1b Given scarcity, trade can make everyone better off ( see Figure 1.1) By reallocating goods, trade benefits all parties – trade is not a zero-sum game Copyright © 2001 by H Figure 1.1 Gains from Trade Through a Better Allocation of Goods Copyright © 2001 by H Scarcity, Choice and Interaction for Individuals (Cont.) 1c Trade also permits producers specialize and take advantage of the division of labor This can be seen in the concept of comparative advantage – people specialize in the things in which they have a relative advantage This allows opportunity cost to be minimized Copyright © 2001 by H Scarcity, Choice and Interaction for Individuals (Cont.) 1d Global trade allows exchange across countries and among many parties 1e Money allows people to trade without bartering, making global trade easier Trade between countries requires that currencies be traded on a foreign exchange market Copyright © 2001 by H The link between “choices” and “resources”: PRODUCTION POSSIBILITIES CURVE Simplifying Assumptions: Economy is operating efficiently Available supply of resources is fixed in quantity and quality at this point of time No new development in technology during analysis Economy produces only types of products Copyright © 2001 by H TABLE 1.1 – PRODUCTION POSSIBILITIES CHOICE A MOVIES COMPUTERS 25,000 B 100 24,000 C 200 22,000 D 300 18,000 E 400 13,000 F 500 Copyright © 2001 by H Production Possibilities Curve (Continued) • Choices will be necessary because resources and technology are fixed • A production possibilities table indicates some of the possible choices • PPC is a graphical presentation of choices Copyright © 2001 by H 10 Figure 1.2 The Production Possibilities Curve Copyright © 2001 by H 11 Production Possibilities Curve (Continued) • Points on the curve represent maximum possible combinations • Points inside the curve represent underemployment or unemployment • Points outside the curve are unattainable at present • Optimal or best product will some point on the curve The exact point depends on society ; this is a normative decision Copyright © 2001 by H 12 Law of increasing opportunity costs • The slope of PPC becomes steeper, showing increasing opportunity cost That is, the amount of other goods and services that must be foregone to obtain more of any given product increases • Economic rationale: economic resources are not completely adaptable to alternative uses Copyright â 2001 by H 13 Key question: How does a society decide its optimal point on the PPC? • Society receives marginal benefits (MB) from each additional product consumed • But the law of increasing opportunity costs reminds us that marginal costs (MC) also rise as more of a product is produced and consumed • Selection Criterion: Produce and consume so long as MB exceeds MC Copyright © 2001 by H 14 Unemployment,economic growth and the future • Unemployment and productive inefficiency occur when the economy is producing less than full production or inside the PPC • Economic growth occurs when PPC shifts outward This happens when: Resource supplies expand in quality or quantity Technological advances are occurring • Our present choices affect our future possibilities Copyright © 2001 by H 15 Figure 1.3 Shifts in the Production Possibilities Curve Copyright © 2001 by H 16 Figure 1.4 Shifts in the Production Possibilities Curve Depend on Choices Copyright © 2001 by H 17 Economic systems • Who owns the factors of production or economic resources? • Who coordinates economic activity? How? • Three main types of economic systems Market economies (Capitalism) Command economy (Communism) Mixed systems Copyright © 2001 by H 18 Characteristics of economic systems Market economy • There is private ownership of resources • Markets and prices coordinate and direct economic activity Command economy • There is public (state or government) ownership of resources • Economic activity is coordinated by central planning Copyright © 2001 by H 19 Figure 1.5 From One Central Idea, Many Powerful Ideas Follow Copyright © 2001 by H 20
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Xem thêm: Economics 3rd ch01 , Economics 3rd ch01 , Scarcity, Choice and Interaction for Individuals, The link between “choices” and “resources”: PRODUCTION POSSIBILITIES CURVE, Unemployment,economic growth and the future