Bài giảng Macro - Chapter 2 The Economic Problem: Scarcity, Wants, and Choices

The Economic Problem:Scarcity, Wants, and ChoicesChapter 2SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGEIn this chapter you will learnThe foundation of economicsThe nature of economic efficiencyHow to achieve economic growthThe two general types of economic systems society can choose to co-ordinate production & consumption decisionsWhat the circular flow model isChapter 2 TopicsThe Foundation of EconomicsGetting the Most From Available ResourcesUnemployment, Growth & the FutureEconomic SystemsThe Circular Flow ModelThe Foundation of EconomicsSociety has virtually unlimited wantsThe Foundation of EconomicsSociety has virtually unlimited wantsBut resources are limited or scarceUNLIMITED WANTSGoods & services provide utilityDesire for a particular good can be satisfied, but not desire for goods in generalRESOURCE CATEGORIESProperty ResourcesRESOURCE CATEGORIESProperty ResourcesLandRESOURCE CATEGORIESProperty ResourcesLandCapitalRESOURCE CATEGORIESProperty ResourcesLandCapitalNotes....INVESTMENTFINANCIAL CAPITALREAL CAPITALRESOURCE CATEGORIESProperty ResourcesLandCapitalHuman ResourcesLabourRESOURCE CATEGORIESProperty ResourcesLandCapitalHuman ResourcesLabourEntrepreneurial AbilityENTREPRENEURIAL ABILITYtakes initiativemakes policy decisionssource of innovationbears the riskPROPERTY RESOURCESHUMAN RESOURCESENTREPRENEURPROFIT &LOSSLANDRENTCAPITALINTERESTWAGESLABOURResource PaymentsRelative Scarcityresources are scarce or limited in supplyultimate constraints on productionChapter 2 TopicsThe Foundation of EconomicsGetting the Most From Available ResourcesUnemployment, Growth & the FutureEconomic SystemsThe Circular Flow ModelDefinition of EconomicsSocial science concerned with using scarce resources to attain maximum fulfillment of society’s unlimited wantsDoing the best with what we haveGetting the Most from Available ResourcesFull employment: using available resourcesFull production: using resources efficientlyproductive efficiencyallocative efficiencyProduction PossibilitiesAssumes:full employment & productive efficiencyfixed resourcesfixed technologytwo goodspizzas symbolize consumer goodsindustrial robots symbolize capital goodsPRODUCTION POSSIBILITIESWhat if we could only produce ...10,000 RobotsPRODUCTION POSSIBILITIES10,000 Robotsor400,000 Pizzasusing all our our resources?What if we could only produce ...PRODUCTION POSSIBILITIES10,000 Robotsor400,000 PizzasTo get some pizza, we mustgive up some robots!for example....What if we could only produce ...PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)PRODUCTIONPOSSIBILITIESCURVEPRODUCTION POSSIBILITIESQQRobots (thousands)Pizzas (hundred thousands)10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8ABCDEattainablebutinefficientWUnattainableAttainable andefficientRobots (thousands)Figure 2-1Production Possibilitiesthe production possibilities curve (frontier) marks the boundary between attainable & unattainable production levelspoints on the curve are attainable & efficientpoints above the curve are unattainablepoints below the curve are attainable & inefficientProduction PossibilitiesLaw of Increasing Opportunity Costs:opportunity cost increases with amount producedas we make more pizzas, the # of robots we have to give up (per pizza) increasesillustrated...PRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)Opportunity Cost 1st Pizza unit=1 Robot unit1 (hundred thousand) pizzas “cost” 1 (thousand) robotsPRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)Opportunity Cost 2nd Pizza unit=2 Robot units1 (hundred thousand) pizzas “cost” 2 (thousand) robotsPRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)Opportunity Cost 3rd Pizza unit = 3 Robot units1 (hundred thousand) pizzas “cost” 3 (thousand) robotsPRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)Opportunity Cost 4th Pizza unit = 4 Robot units1 (hundred thousand) pizzas “cost” 4 (thousand) robotsPRODUCTION POSSIBILITIESPIZZA 0 1 2 3 4(in hundred thousands)ROBOTS 10 9 7 4 0(in thousands)Opportunity Cost 1st Pizza Unit = 1 Robot UnitOpportunity Cost 2nd Pizza Unit = 2 Robot UnitsOpportunity Cost 3rd Pizza Unit = 3 Robot UnitsOpportunity Cost 4th Pizza Unit = 4 Robot Unitsthe more pizzas we make, the more each one costs, in terms of robot units foregoneProduction PossibilitiesLaw of Increasing Opportunity Costs:as we make more pizzas, the # of robots we have to give up (per pizza) increasesso production possibilities curve gets steeper and steeper1st pizza unitcosts 1 robot unit2nd pizza unitcosts 2 robot units3rd pizza unitcosts 3 robot unitsthe more pizzawe make, themore robots we haveto give up the steeperthe curveLAW OF INCREASING OPPORTUNITY COSTSMeans a graph of the production possibilities curve will be CONCAVE — bowed out from the originEconomic resources are not completely adaptable to other usesProduction Possibilitieswhich point on the frontier is BEST?need more info to decide on allocative efficiencydecide on allocative efficiency by comparing Marginal (extra) Cost (MC) to Marginal Benefit (MB)Marginal Benefit is the extra benefit associated with consuming one more unitMarginal Cost is the extra opportunity cost of that extra unitAllocative Efficiency RevisitedAllocative Efficiency RevisitedMCMBMB > MCunderallocation of resourcesAllocative Efficiency RevisitedMCMBMB < MCoverallocation of resourcesAllocative Efficiency RevisitedMCMBtoo fewtoo manyMB=MCChapter 2 TopicsThe Foundation of EconomicsGetting the Most From Available ResourcesUnemployment, Growth & the FutureEconomic SystemsThe Circular Flow ModelProduction Possibilities CurveQQRobots (thousands)Pizzas (hundred thousands)10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8UUnemployment &Underemployment Shown by Point URobots (thousands)Figure 2-3Production Possibilities CurveQQRobots (thousands)Pizzas (hundred thousands)10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8Unemployment &Underemployment Shown by Point URobots (thousands)UMore of either orboth is possibleFigure 2-3Production Possibilities CurveEconomic Growth: a rightward shift of the production possibilities curve caused by.... 1. Increases in resource supplies 2. Advances in technology PRODUCTION POSSIBILITIESEconomic GrowthQQPizzas (hundred thousands)1413121110 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8A’B’C’D’E’Robots (thousands)Figure 2-4PRODUCTION POSSIBILITIESTwo Examples of Economic GrowthGoods for the PresentGoods for the FutureFAVOURINGPRESENT GOODSFUTURECURVEFigure 2-5PRODUCTION POSSIBILITIESTwo Examples of Economic GrowthGoods for the PresentGoods for the PresentGoods for the FutureGoods for the FutureFAVOURINGPRESENT GOODSFAVOURINGFUTURE GOODSFUTURECURVEFUTURECURVEFigure 2-5Qualification: International Tradean individual nation is limited by the production possibilities curvebut NOT when there is international specialization and trade!possible to consume ABOVE the production possibilities curveExamples & ApplicationsUnemployment & Productive Inefficiencythe Great DepressiondiscriminationTradeoffs & Opportunity Costslogging or wilderness?Shifts in Production Possibilities Curvescell phones, the InternetChapter 2 TopicsThe Foundation of EconomicsGetting the Most From Available ResourcesUnemployment, Growth & the FutureEconomic SystemsThe Circular Flow ModelEconomic Systemsresource allocation methods differ according to:resource ownershipco-ordination methodThe Market Systemprivate ownership of capitalprices & markets co-ordinate activityindependent actions of buyers & sellerslimited role for governmentThe Command Systemsocialism, communismgovernment owns most resourcescentral planningChapter 2 TopicsThe Foundation of EconomicsGetting the Most From Available ResourcesUnemployment, Growth & the FutureEconomic SystemsThe Circular Flow ModelBUSINESSESCircular Flow ModelFigure 2-6BUSINESSESHOUSEHOLDSCircular Flow ModelFigure 2-6BUSINESSESHOUSEHOLDSRESOURCEMARKETRESOURCESINPUTSCircular Flow ModelFigure 2-6BUSINESSESHOUSEHOLDSRESOURCEMARKETRESOURCESINPUTS$ COSTS$ INCOMESCircular Flow ModelFigure 2-6BUSINESSESHOUSEHOLDSRESOURCEMARKETRESOURCESINPUTS$ COSTS$ INCOMESPRODUCTMARKETGOODS &SERVICESGOODS &SERVICESCircular Flow ModelFigure 2-6BUSINESSESHOUSEHOLDSRESOURCEMARKETRESOURCESINPUTS$ COSTS$ INCOMESPRODUCTMARKETGOODS &SERVICESGOODS &SERVICES$ CONSUMPTION$ REVENUECircular Flow ModelFigure 2-6Chapter 2 TopicsThe Foundation of EconomicsGetting the Most From Available ResourcesUnemployment, Growth & the FutureEconomic SystemsThe Circular Flow ModelNEXT Individual MarketsDemand & Supply Chapter 3