chapter 1 what is economics about. appendix a working with diagrams
Post on 19-Dec-2015
224 views
TRANSCRIPT
![Page 1: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/1.jpg)
Chapter 1
What is Economics About
Chapter 1
What is Economics About
![Page 2: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/2.jpg)
Appendix A
Working with Diagrams
![Page 3: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/3.jpg)
Types of Relationships between variables
• Direct– Positive
• Inverse– Negative
• No Relationship– Variables are independent
![Page 4: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/4.jpg)
Two-Variable Diagram Representing an Inverse Relationship
Two-Variable Diagram Representing an Inverse Relationship
a
20
18
16
14
12
0
Price of CDs ($)
Quantity Demanded of CDs100 120 140 160 180
The variables priceand quantitydemanded areinversely related.
Demand for CDs
A
B
C
D
E
![Page 5: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/5.jpg)
Two-Variable Diagram Representing a Direct Relationship
Two-Variable Diagram Representing a Direct Relationship
a
360
300
240
180
120
60
0
Consumption ($)
Income ($)
100 200 300 400 500
The variablesincome andconsumption aredirectly related.
A
B
C
D
E
F
![Page 6: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/6.jpg)
Two Diagrams Representing Independence between Two
Variables
Two Diagrams Representing Independence between Two
Variables
a
(b)(a)
40
30
20
10
010 20 30 40
A B C D
Y
X
Variables X and Y areindependent (neither variable
is related to the other).
40
30
20
10
010 20 30 40
A
B
C
D
Y
X
Variables X and Yare independent.
![Page 7: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/7.jpg)
Slope
• Used to see how a variable changes in response to another variable changing
horizontal
vertical
X
YSlope
![Page 8: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/8.jpg)
To calculate slope
• Find two points on any straight line
21
21
12
12
XX
YYor
XX
YY
![Page 9: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/9.jpg)
What sign do you expect the slope to have?
• Direct relationship– Positive
• Inverse relationship– Negative
• No Relationship– 0 or infinity
![Page 10: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/10.jpg)
Calculating Slopes Calculating Slopes
a
YX
= +10+5
= +2Slope =Slope=Y
= = –1–10
10
40
30
20
10
010 20 30 40
(a)
A
B
C
D
X
Y
Y
X
40
30
20
10
010 20
(b)
A
B
C
D
X
Y
15
(negative slope)X
(positive
![Page 11: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/11.jpg)
Calculating SlopesCalculating Slopes
a
010
+100
Slope =Y
= = `X(infinite slope)
A
B
C
D
Slope =Y
= = 0X(zero slope)
(d)(c)
40
30
20
10
010 20 30 40
A B C D
Y
X
40
30
20
10
010 20 30 40
Y
X
![Page 12: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/12.jpg)
The 45 Line The 45 Line
a
20
20
Y
X
A
45
Line45
0
![Page 13: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/13.jpg)
Homework• Chapter 1
–Questions 4, 5, 7, 8
• Chapter 1 Appendix–Questions 6, 7, 9
![Page 14: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/14.jpg)
In-class exercise 1
Do we understand Chapter 1?
![Page 15: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/15.jpg)
Appendix B
Should you major in Economics??
![Page 16: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/16.jpg)
Five myths about economics and an economics major
• Economics is all mathematics and statistics• Economics is only about inflation, interest rates,
unemployment, and other such things• People become economists only if they want to
“make money”• Economics wasn’t very interesting in high
school, so it isn’t going to be interesting now• Economics is a lot like business, but business is
more marketable
![Page 17: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/17.jpg)
Chapter 2 Economic Activities:
Producing and Trading
Chapter 2 Economic Activities:
Producing and Trading
![Page 18: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/18.jpg)
Efficiency
• Efficiency of Production is goal
• If a firm is producing the max possible given available resources and technology
![Page 19: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/19.jpg)
Production Possibility Frontier(PPF)
• Shows all possible combinations of goods for a particular economy at a particular point in time, given its resources and technology constraints
![Page 20: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/20.jpg)
Production Possibilities Frontier for Grades
Production Possibilities Frontier for Grades
a
(a)
A
B
C
D
E
F
G
POINT INPART (b)
60
65
70
75
80
85
90
GRADE INECONOMICS
0
1
2
3
4
5
6
HOURS SPENTSTUDYING
ECONOMICS
90
85
80
75
70
65
60
GRADE INSOCIOLOGY
6
5
4
3
2
1
0
HOURS SPENTSTUDYING
SOCIOLOGY
![Page 21: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/21.jpg)
Production Possibilities Frontier for Grades Production Possibilities Frontier for Grades
a
Grade in Soc io logy
90
85
80
75
70
65
6065 70 75 80 90
A
B
C
D
E
F
Grade in Economics
ProductionPos s ibilities
Frontier (PPF)
Part (b)
60 85
G
H
(Soc . 90, Econ. 60)
(Soc . 85, Econ. 65)
![Page 22: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/22.jpg)
Where are we on the PPF?
• Can we be on the PPF?– Yes!– efficient
• Can we be under the PPF?– Yes!– Inefficient
• Can we be over the PPF?– NO
![Page 23: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/23.jpg)
Two types of Production Possibility Frontiers
Constant Opportunity Costs
• STRAIGHT LINE
• DOWNWARD SLOPED (inverse relationship)
• 1 to 1 relationship (slope constant)
![Page 24: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/24.jpg)
Production Possibilities Frontier (Constant Opportunity Costs)
Production Possibilities Frontier (Constant Opportunity Costs)
a
COMBINATIONCOMPUTERS AND TELEVISION SETS
(number of units per year)POINT INPANEL (b)
A
B
C
D
E
F
A
B
C
D
E
F
50,000
40,000
30,000
20,000
10,000
0
and
and
and
and
and
and
0
10,000
20,000
30,000
40,000
50,000
Part (a)
![Page 25: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/25.jpg)
Production Possibilities Frontier (Constant Opportunity Costs)
Production Possibilities Frontier (Constant Opportunity Costs)
a
Co mpute rs (thous ands per ye ar)
50
40
30
20
10
0 10 20 30 40 50
A
B
C
D
E
F
Tele vis io n Sets (tho us ands pe r year)
A s traight-line PPFillus trate s cons tantopportunity c os ts .
Part (b)
![Page 26: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/26.jpg)
Second Type of PPF
Changing Opportunity Costs
• BOWED OUT PPF
• Real world PPF
• Changing slope with every point
![Page 27: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/27.jpg)
Production Possibilities Frontier (Changing Opportunity Costs)
Production Possibilities Frontier (Changing Opportunity Costs)
a
COMBINATIONCOMPUTERS AND TELEVISION SETS
(number of units pe r year)POINT IN
PANEL (b)
A
B
C
D
A
B
C
D
50,000
40,000
25,000
0
and
and
and
and
0
20,000
40,000
60,000
Part (a)
![Page 28: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/28.jpg)
Production Possibilities
Frontier (Changing
Opportunity Costs)
Production Possibilities
Frontier (Changing
Opportunity Costs)
a
Computers (thous ands per year)
50
40
30
20
10
0 10 20 30 40 50
Televis ion Sets (thous ands per year)
Part (b)
60
B
C
A
D
25
A bowed outward
(concave) PPF illus trates
increas ing opportunity
cos ts .
![Page 29: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/29.jpg)
Law of Increasing Opportunity Costs
• Goes along with CHANGING OPPORTUNITY COSTS
• As more of a good is produced the opportunity cost to produce that good increases.
![Page 30: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/30.jpg)
A Summary Statement about Increasing
Opportunity Costs and a Production
Possibilities Frontier That Is Bowed
Outward (Concave Downward)
A Summary Statement about Increasing
Opportunity Costs and a Production
Possibilities Frontier That Is Bowed
Outward (Concave Downward)
a
} 5
60 70 110 120
30
50
B
C
A
D
Hous es
Good X
20
10 10
0
95100
![Page 31: Chapter 1 What is Economics About. Appendix A Working with Diagrams](https://reader031.vdocuments.net/reader031/viewer/2022033101/56649d3a5503460f94a145ac/html5/thumbnails/31.jpg)
Economic Concepts illustrated by PPF
• Scarcity
• Choice
• Opportunity Costs
• Law of Increasing Opportunity Costs