Download Goods and services - Westmoreland Central School

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website, in whole or in part.
MVCC COURSE - BM 101
1
1
The Role and
Method of
Economics
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website, in whole or in part.
2
Economics: A Brief Introduction
• Economics
• ‘Okionomia’ (Greek): management of household affairs
• ECONOMICS
• The study of ________ we make among
our many ______ & ________, given our
limited resources
• It is a _______-_______ science that
concerns itself with the choices we
make in the face of ________
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
3
Economics: A Brief Introduction
• Resources
• Inputs used to produce ______ & __________
• Land, human effort, skills, machines, factories
• Scarcity
• Scarcity exists when human _________ exceed available resources
• The economic problem
• ___________ forces us to choose
• Choices are _________
• We must give up
other opportunities
that we value
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
4
Economics: A Brief Introduction
• Unlimited human wants
• Not the same as needs
• People are not able to fulfill all their wants and ______________
• Limited resources
•
•
•
•
Labor
_________
Capital
Entrepreneurship
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website, in whole or in part.
5
Scarcity and Limited Resources
• Labor
• Physical and ________ effort used in the production
of _______ & services
• Land
• “Gifts of ________”
• Natural __________ used in the production of goods and services
• Capital
• Equipment and ____________ used to produce
goods and services
• Human capital
• Productive ____________ & skill people receive
from education and on-the-job training
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
6
Scarcity and Limited Resources
• Entrepreneurship
• Process of ______________ labor, land, and capital to produce goods and
services
• Entrepreneurs
•
•
•
•
Tough and risky decisions
New ways to improve __________ techniques or to create new products
Lured by the chance of making a profit
Take risks
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
7
What are Goods and Services?
• Goods
• _______ we value or desire
• _________ goods: we can reach
out and touch
• _________ goods: we cannot
reach out and touch
• Services
• Intangible _____ for which people
are willing to pay
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
8
What are Goods and Services?
• Goods and services
• Produced from _________ resources
• Economic goods
• Scarce goods created from scarce
resources
• ___________ but in limited in supply
• We compete for them
• Bads
• Items that we do not desire or want
• ______ is preferred to more
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
9
Scarcity
• We all face scarcity
• We cannot have ______ the goods & services we desire
• Will scarcity ever be eradicated?
• Scarcity ________ has & _______ will be eradicated
• New wants
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
10
Economic Behavior
• Self-interest
• Individuals act as if they are motivated by self-interest
• Respond in __________ ways to changing circumstances
• Economists’ assumption
• Good predictor of ________ behavior in most situations
• Can include benevolence
• Not necessarily _________
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
11
Economic Behavior
• Rational behavior
• People do the best they can
• Based on their values & __________
• Under current and anticipated future circumstances
• Economists’ assumption
• Most people act _____________
• Make decisions with some expected outcome in mind
• Their actions are rational and purposeful, not random and chaotic
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
12
Economic Behavior
Enormous amounts of resources (_____ & ______) were
donated to the Hurricane Katrina victims. If individuals
are acting to promote the things that interest them, are
these self-interested acts necessarily selfish? Acting in
one’s own self-interest is only selfish if one’s interests are
selfish.
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website, in whole or in part.
13
Economic Behavior
• People respond to changes in incentives
• Reacting to changes in _________ and costs
• Human behavior
• Influenced in predictable ways by
changes in economic _____________
• Can be explained and predicted
as a __________ to incentives
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website, in whole or in part.
14
Markets
• Market
• Process of buyers and sellers
___________ goods and services
• Market economy
• Provides a way for millions of producers
& ____________ to allocate scarce
resources
• Efficiency
• Achieved when the economy gets the
most out of its scarce resources
• Makes the economic pie as large as
possible
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
15
Markets
• Competitive markets
• Make existing products ___________ &/or less ____________
• Improve production processes
• Create new products
• Markets
• Provide what buyers are ________ & _______ to pay for
• And what sellers are willing and able to produce
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
16
Market Prices provide Important Information
• Market price
• Serve as the ___________ of the market system
• Communicate important information to both buyers and
sellers
• Buyers: relative availability
of products
• Sellers: relative value that
consumers place on those
products
• Reflects the _______ a buyer places
on a good
• Reflects the cost to society of
producing that good
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
17
Market Prices provide Important Information
• The basis of a market economy
• Voluntary __________
• Price _______
• Guides people’s choices
• Produces solutions to the
questions of
• What goods to produce
• How to produce and
distribute them
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website, in whole or in part.
18
Markets
• Countries that do not rely on a market system
• Have no clear communication between buyers and sellers
• ___________ of quality goods
• ___________ of low quality goods
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
19
Market Failure
• Market failure
• When the economy fails to allocate resources
efficiently on its own
• Pollution
• Produce too little of a good
• _________
• Market power
• Government: can help promote efficiency
when there is a market failure
• Making the economic pie larger
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
20
Market Failure
• Does the market distribute income fairly?
• Trade-off between efficiency and equality
• How much an economy can produce efficiently
• How that output is distributed
• Efficient market does not guarantee a “_______” or equal distribution of
income
• What is “fair” for one person may seem highly “______” to someone else
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
21
Market Failure
• Government is not always the solution
• Just because the gov’t could improve the situation does not mean it will
• The political _________ has its own set of problems
• Special interests
• Shortsightedness
• Imperfect information
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
22
The Circular Flow Model
• Product markets: goods and services
• _________: producers of goods and services
• Households: buyers of goods and services
• __________: from households to firms
• Factor markets: inputs
• Firms: buy inputs to produce the goods
and services
• Households: sell the inputs
• Payments: from firms to households
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
23
The Simple Circular Flow Model
• Product market
• Firms produce goods and services
• Earn __________
• Households buy goods and services
• Consumption spending
• Factor market
• Households sell labor, land, capital,
entrepreneurship - earn money (income)
• Firms purchase inputs
• Pay wages, rent, interest, profit
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
24
EXHIBIT 1.1
The Circular Flow Diagram
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website, in whole or in part.
25
Economic Theory
• Economic theories
• Statements or propositions about __________ of human behavior that
occur expectedly under certain circumstances
• Ignores the irrelevant details
• ___________ assumptions
• A good theory
• Explains and predicts well
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
26
Economic Theory
• Hypothesis: testable proposition
• How people will _______ or react to a change in economic circumstances
• Empirical analysis
• Use of data to test a hypothesis
• Evaluate the results
• Accept or _____ the hypothesis
• The ceteris paribus assumption
• Holding all other things ____________
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
27
Economic Theory
• Observation and prediction are more
difficult in the social sciences
• Human behavior: more ___________ & often less readily predictable
• Group behavior
• More _____________ than individual behavior
• Reliable predictions about human behavior
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
28
Economic Theory
• Economists do not typically use survey data
• Prefer to look at revealed preferences
• How people _________ behave
• Rather than declared preferences
• How they say they behave
• Microeconomics
• Household and firm behavior and
how they ________ in the marketplace
• Macroeconomics
• Study of the _________ economy
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
29
Pitfalls to Avoid in Scientific Thinking
• Confusing correlation and causation
• Correlation: when two events occur __________
• Causation: when one event _______ ________ another event
• Consider in which direction causality runs
• Fallacy of composition
• Incorrect view that what is true for the individual is always true for the
group
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
30
Positive and Normative Economics
• Positive analysis
• Factual statements trying to
explain the ________
• Positive statement
• Objective, testable statement
that describes what happens
& _______ it happens
• Doesn’t have to be true, it has
to be testable
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
31
Positive and Normative Economics
• Normative analysis
• Value judgments trying to __________ the world
• Normative statement
• Subjective, contestable statement
that attempts to describe what
should be done
• Judgments about what should be
or what _______ to happen
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
32
Disagreement Is Common in Most Disciplines
• Disagreements in economics
• Opposing views on economic policy questions
• Stem from normative issues
• Differences in values or policy beliefs result in ___________
• Most economists agree on a wide range of
issues
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website, in whole or in part.
33
Economists do agree
1. A ceiling on rents (Rent Control)
•
Reduces the quantity and quality of rental housing available (93% agree)
2. Tariffs and import quotas
•
Reduce general economic welfare (93%)
3. The United States should
not restrict employers
•
From _____________
work to foreign
countries (90%)
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website, in whole or in part.
34
Economists do agree
4. Fiscal policy (e.g., tax cuts &/or increases in
government expenditure)
•
Significant stimulative impact on an economy
that is less than fully employed (90%)
5. Flexible and floating
exchange rates
•
Effective international
monetary arrangement (90%)
6. The gap between Social Security funds and
expenditures will become unsustainably large
•
Within the next 50 years if the current policies remain unchanged (85%)
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
35
Economists do agree
7. The United States
•
Should eliminate agricultural subsidies (85%)
8. Local and state governments in
the United States
•
Should eliminate subsidies to professional
sport franchises (85%)
9. A large budget deficit has
an adverse effect on the
economy (83%)
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
36
Economists do agree
10. A minimum wage
•
Increases unemployment among young and unskilled workers (79%)
11. Effluent taxes and marketable pollution permits
•
Represent a better approach to pollution control than imposition of
pollution ceilings (78%)
12. Economists favor expanding competition and
market forces in education (67.1%)
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
37
Working with graphs
Graphs are an important economic tool
• Understand better the workings of the _______
• Can be worth a _________ words
Graph
•
•
•
•
Y-axis: _________ axis on a graph
X-axis: _________ axis on a graph
Origin
Quadrants
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
38
EXHIBIT 1.2
Plotting a Graph
Y
40
30
20
10
-40 -30 -20 -10 0
-10
X
10 20 30 40
-20
-30
-40
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
39
Working with graphs
Pie chart
• Relative size of various quantities that add up to
______ percent
Bar graph
• _______ of quantities
Time-series graph
• Changes in a variable’s value over _______
Variable
• Something that is measured by a number
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
40
EXHIBIT 1.3
Pie Chart, Bar Graph, and Time-Series Graph
a. Pie Chart—Tax Revenues—Federal Government, 2011
SOURCE: Economic Report of the President, 2012.
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
41
EXHIBIT 1.3
Pie Chart, Bar Graph, and Time-Series Graph
b. Bar Graph—U.S. Unemployment, by Sex and Age, 2011
SOURCE: Bureau of Labor Statistics
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
42
EXHIBIT 1.3
Pie Chart, Bar Graph, and Time-Series Graph
c. Time-Series Graph—Inflation in the United States, 1913–2011
SOURCE: Bureau of Labor Statistics, Consumer Price Index
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
43
Working with graphs
Positive relationship
• When two variables change in the _______
direction
Negative relationship
• When two variables change in __________
directions
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
44
A Positive Relationship
EXHIBIT 1.4
D
10
(40, 10)
Scores at Z Games
9
C
8
(30, 8)
7
B
6
5
4
(20, 6)
A
(10, 4)
3
2
1
0
10
20
30
40
Practice Time per Week
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website, in whole or in part.
45
The graph of a demand curve
Graph of the demand curve
• Horizontal axis: quantity purchased per period
of time
• Vertical axis: price per unit
• Every point: price and quantity combination
• Downward-sloping line
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
46
A Negative Relationship
EXHIBIT 1.5
$25
(1, $25)
A
Price of Pizzas
20
(2, $20)
B
Demand
curve
(3, $15)
15
C
(4, $10)
10
D
(5, $5)
5
E
0
1
2
3
4
5
6
Quantity of Pizzas Purchased
(per month)
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
47
Relationship among three variables
Add a third variable, income
• Not shown on a axis
• Change in income: shift in the demand
• Increase in income
• Increase in demand
• Demand curve shifts outward (to the right)
• Decrease in income
• Decrease in demand
• Demand curve shifts inward (to the left)
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
48
EXHIBIT 1.6
Shifting a Curve
b. Demand Curve with Lower Income
Price of Pizzas
Price of Pizzas
a. Demand Curve with Higher Income
D
D (with
lower income)
D (with
higher income)
0
D
0
Quantity of Pizzas Purchased
Quantity of Pizzas Purchased
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
49
Movement along vs. shift
Movement along
• Movement between one point and another
along a curve
• Cause: change in one of the variables on the
graph
Shift
• Shift in the whole curve
• Cause: change in one of the variables not shown
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
50
Shifts versus Movements
Price of Pizzas
EXHIBIT 1.7
A
B
D2
D1
0
Quantity of Pizzas Purchased
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
51
Slope
Slope
• The ratio of rise (change in the Y variable) over
run (change in the X variable)
• Steepness of a line or curve on a graph
Positive slope: upward-sloping
• Direct, or positive, relationship between the two
variables
• Slants upward from left to right
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
52
Slope
Negative slope: downward-sloping
• An inverse, or negative, relationship between
the two variables
• Slants downward from left to right
Linear curve
• A straight line
Slope of a linear curve
• Rise over run
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
53
Downward- and Upward-Sloping Linear Curves
EXHIBIT 1.8
a. Downward-Sloping Linear Curve
25
Downward-sloping
b. Upward-Sloping Linear Curve
25
20
20
15
15
10
10
5
5
0
5
10
15
20
25
0
Upward-sloping
5
10
15
20
25
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
54
Slopes of Positive and Negative Curves
EXHIBIT 1.9
b. Negative Slope
10
10
9
9
8
8
7
7
6
Y-axis
Y-axis
a. Positive Slope
Positive
Slope 1/2
5
4
A
2
1
2
5
B
2
2 Run
0
-8
Rise
3
1 Rise
1
6
Negative
Slope
-4
4
B
3
A
+2 Run
1
3
X-axis
4
5
6
0
1
2
3
4
5
6
X-axis
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
55
Slope
Slope of a non-linear curve (line that curves)
• The slope varies from point to point along the
curve
Slope of a non-linear curve at any given point
• Draw a straight line tangent to that point on the
curve
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
56
EXHIBIT 1.10
Slopes of a Nonlinear Curve
5
Y-axis
4
Slope = 0
3
B
A
C
2
1
0
1
2
3
4
5
6
7
X-axis
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
57