dr. petros kosmas lecturer varna free university academic year 2010 - 2011 lecture 4 microeconomics...
Post on 21-Dec-2015
216 views
TRANSCRIPT
![Page 1: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/1.jpg)
DR. PETROS KOSMASLECTURER
VARNA FREE UNIVERSITY
ACADEMIC YEAR 2010 - 2011
LECTURE 4
MICROECONOMICS AND MACROECONOMICS
ECO-1067
![Page 2: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/2.jpg)
Scarcity
A condition that exists when there are not enough goods or services available to meet the wants and needs of consumers
A study of how to meet the unlimited wants of a society with its limited resources.
ECO-1067
![Page 3: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/3.jpg)
ECONOMIC RESOURCES (Factors of Production)
Land
Labor
Capital
EntrepreneurshipECO-1067
![Page 4: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/4.jpg)
Land
Natural resources
Everything contained in the earth or found in the sea
ECO-1067
![Page 5: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/5.jpg)
Labour
Human resources
All people who work in the economy
Full- and part-time workers
Managers
Public employees
Professional people
ECO-1067
![Page 6: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/6.jpg)
Capital
Money needed to start and operate a business
Goods used in the production of other goods
ECO-1067
![Page 7: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/7.jpg)
Entrepreneurship
Skills of people willing to take the risk of starting their own business
ECO-1067
![Page 8: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/8.jpg)
The Concept of Opportunity Cost
Opportunity cost of any choice What we forego when we make that choice
Most accurate and complete concept of cost
Opportunity cost of a choice includes both explicit costs and implicit costs Explicit cost— money actually paid out for a choice Implicit cost—value of something sacrificed when no
direct payment is made
ECO-1067
![Page 9: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/9.jpg)
All production carries an opportunity cost
To produce more of one thing
Must shift resources away from producing something else
Opportunity Cost and Society
ECO-1067
![Page 10: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/10.jpg)
Production Possibilities Frontiers
(PPF)
Curve showing all combinations of two goods that can be produced with resources and technology available
Society’s choices are limited to points on or inside the PPF
ECO-1067
![Page 11: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/11.jpg)
Figure 1: The Production Possibilities Frontier
Quantity of chocolate per
Period
Quantity of corn per
Period
100,000 200,000 300,000 400,000 500,000
1,000,000950,000850,000
700,000
500,000400,000
BA
C
D
E
F
W
At point A, all resources are used for corn
Moving from point A to point B requires shifting resources out of corn and into chocolate.
At point F. all resources are used for chocolate.
ECO-1067
![Page 12: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/12.jpg)
Increasing Opportunity Cost
According to law of increasing opportunity cost
The more of something we produce
The greater the opportunity cost of producing even more of it
This principle applies to all of society’s production choices
ECO-1067
![Page 13: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/13.jpg)
Figure 2: Production and Unemployment
A
B
Civilian Goods per Period
Military Goods per Period
2. then moved to the PPF during the war. Both military and civilian production increased.
1. Before WWII the United States operated inside its PPF . . .
ECO-1067
![Page 14: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/14.jpg)
Economic Growth
If economy is already operating on its PPF Cannot exploit opportunity to have more of everything by
moving to it
But what if the PPF itself were to change? Couldn’t we then produce more of everything? This happens when an economy’s productive capacity
grows
Many factors contribute to economic growth, but they can be divided into two categories Quantities of available resources Technological change enables us to produce more from a
given quantity of resources
ECO-1067
![Page 15: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/15.jpg)
Figure 3: The Effect of a New Technology to Produce Chocolate
Quantity of chocolate per Period
Quantity of corn per
period
300,000 500,000 600,000
1,000,000
700,000
A
J
D
H
F
More corn AND More chocolate
Same corn+ More chocolate
F'
ECO-1067
![Page 16: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/16.jpg)
Productivity
Productivity is a measure of the efficiency with which goods and services are produced.
Suppose 2 workers, A and B, are making identical articles, both of them using exactly the same equipment
In a 40 hour week, Worker A produces 400 articles In a 40 hour week, Worker B produces 600 articles
Worker A’s productivity = 400 articles/40 hour a weak = 10 articles per hourWorker B’s productivity = 600 articles/40 hour a weak = 15 articles per hour
Productivity = Output / Input,
Output the number of articles produced, Input the number of hours worked
ECO-1067
![Page 17: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/17.jpg)
The Difference between Production and Productivity
It is important to be perfectly clear on the difference in the meaning of the words production and productivity,
Suppose 2 firms are making very similar footwear and have the following weekly outputs:
If Firm X is using more than twice as much labour and capital as Firm Y, for example, then its productivity is less than that of Firm Y
Firm X
10.000 shoes
Firm Y
5.000 shoes
ECO-1067
![Page 18: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/18.jpg)
Resource Allocation
Problem of resource allocation Which goods and services should be produced
with society’s resources? Where on the PPF should economy operate?
How should they be produced? No capital at all Small amount of capital More capital
Who should get them? How do we distribute these products among the different
groups and individuals in our society?
ECO-1067
![Page 19: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/19.jpg)
The Three Methods of Resources Allocation
Traditional Economy Resources are allocated according to long-lived
practices from the past
Command Economy (Centrally-Planned) Resources are allocated according to explicit
instructions from a central authority
Market Economy Resources are allocated through individual decision
making
ECO-1067
![Page 20: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/20.jpg)
The Nature of Markets
A market is a group of buyers and sellers with the potential to trade with each other
Global markets Buyers and sellers spread across the globe
Local markets Buyers and sellers within a narrowly defined
area
ECO-1067
![Page 21: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/21.jpg)
The Importance of Prices
A price is the amount of money that must be paid to a seller to obtain a good or service
When people pay for resources allocated by the market They must consider opportunity cost to society of their
individual actions
Markets can create a sensible allocation of resources
ECO-1067
![Page 22: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/22.jpg)
Resource Ownership
Communism Most resources are owned in common
Socialism Most resources are owned by state
Capitalism Most resources are owned privately
ECO-1067
![Page 23: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/23.jpg)
Types of Economic Systems
An economic system is composed of two features
Mechanism for allocating resources Market Command
Mode of resource ownership Private State
ECO-1067
![Page 24: DR. PETROS KOSMAS LECTURER VARNA FREE UNIVERSITY ACADEMIC YEAR 2010 - 2011 LECTURE 4 MICROECONOMICS AND MACROECONOMICS ECO-1067](https://reader030.vdocuments.net/reader030/viewer/2022032704/56649d545503460f94a31af2/html5/thumbnails/24.jpg)
Figure 4: Types of Economic Systems
Resource Allocation
Market Command
Private
State
Resource Ownership
Market CapitalismCentrally Planned
Capitalism
Centrally Planned Socialism
Market Socialism
ECO-1067