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F.4 Economics CH1-The Nature of Economi cs 1 HKCEE HKCEE Microeconomics Microeconomics Chapter 1: The Nature of of Economics

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HKCEE Microeconomics. Chapter 1: The Nature of of Economics. What is Economics?. The study of how men allocate l _________ resources to satisfy their u _____________ wants. W hat is Economics?. Want and Demand. Want: A desire A particular want can be perfectly satisfied Demand: - PowerPoint PPT Presentation

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Page 1: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics1

HKCEE HKCEE MicroeconomicsMicroeconomics

Chapter 1:

The Nature of

of Economics

Page 2: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics2

What is Economics?

The study of how men allocate l_________ resources to satisfy their u_____________ wants.

Page 3: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics3

What is Economics?

Page 4: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics4

Want and Demand

Want:– A desire– A particular want can be perfectly satisfied

Demand:– Want + p_________________ power

Page 5: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics5A want A demand

Want or Demand?

Page 6: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics6

Scarcity and Opportunity Cost

Unlimited wants Limited resources

scarcity

choice

Opportunity cost (OC)

Page 7: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics7

Remarks on Scarcity

Scarcity is a r______________ concept Scarcity exists when limited resources are

insufficient to satisfy all unlimited wants Scarcity is simply a condition that we want

more than we have Scarcity is a universal problem Scarcity can be reduced but not be eliminate

d

Page 8: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics8

Is Sea Water Scarce?

No! Because we do NOT want more than we have.

Exercise 1: TB/P.3/MCQ 1Exercise 2: TB/P.4/Q 1.1Exercise 3: TB/P.5/MCQ 2

Page 9: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics9

Opportunity Cost (OC)

OC is the h_____________ valued (or best) option f_____________

We choose the highest valued/best option and forgo the second best option, which becomes our OC in a making decision

Exercise 4: TB/P.7/MCQ 3

Page 10: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics10

Opportunity Cost (OC)

What is OC for Dorothy to choose the doll?

Page 11: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics11

Opportunity Cost (OC)

Full cost

= out-of-pocket cost + income forgone

= explicit cost + implicit cost

Closer Look: TB/P.9/1.4

Page 12: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics12

The Case

Explanation

Consolidation Exercise (M.C)

Case Study

Page 13: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics13

Case Study

Romeo & Juliet: A Dilemma

Page 14: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics14

               

               

              

.

.

我是陳大文,行年廿九歲,尚未取妻。由於我是一間上市公司的主席,所以根本沒有時間結識女朋友。我阿媽就好心急,成日想我早D結婚。

Page 15: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics15

我已經幫你安排了三個女仔同你相睇。你快D睇下鍾意邊個...

   

阿媽好想抱個孫仔

Page 16: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics16

Page 17: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics17

      

哇!!!是神仙下凡嗎???     

     阿仔,呢位就係我所講的朱咪咪小姐

Page 18: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics18

有著我便有著你,千個萬個世紀..愛是永恆,當所愛是你... 

Page 19: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics19

阿媽!我得O左啦!!!

Page 20: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics20

Wants

Desires for things Unlimited

In this case, wants may include:– To have a girlfriend– To be successful in his job– To have leisure time

Page 21: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics21

Resources

Things that used to satisfy our wants Types:

– Natural resources– Human resources– Man-made resources

In this case, resources may include:– Money & time

Page 22: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics22

Scarcity

We want more than we have

Unlimited wants Limited resources

To have a girlfriend;

To be successful in his job;

To have more leisure time

Money;

Time

Page 23: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics23

Choice

Because we cannot satisfy all our wants with limited resources, we have to make choice.

In this case:– Dating with Betty? Alice? Juliet?

Page 24: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics24

Opportunity cost

The highest valued option forgone

In this case:– The OC of choosing to date with Juliet is the

forgone dating with Alice? Betty?

Page 25: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics25

Limited resources Unlimited wants

Scarcity

Choice

Opportunity cost

Scarcity, Choice & OC

Page 26: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics26

Multiple Choice Exercise

(1) Which of the following statements concerning wants is FALSE?

Human wants will not exists if men are more concerned for others.

Human wants are unlimited.The priority of wants for a person can

change over time.Wants may be different for different

persons.

C

A

B

D

Page 27: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics27

(2) Which of the following statements about choices is FALSE?

In making choices, some wants have to be given up. It is scarcity that leads to choices. Sacrifice is involved in making choices. We always choose the alternative of the second priority

A

C

B

D

Page 28: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics28

(3) With limited pocket money, you rank soft drink first, followed by potato chips, and finally a sandwich. What is your opportunity cost of buying the bottle of soft drink?

Another bottle of soft drink.A pack of potato chips.A sandwich.A pack of potato chips or a sandwich

ABCD

Page 29: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics29

(4) The cost of an event is the

Best option

Best option forgone

money spent.

All options available

A

B

C

D

Page 30: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics30

(5) Scarcity 1. means that the amount of resources is not

sufficient to satisfy all our wants. 2. means that we want more than we have. 3. implies we have to make choices.

(1) & (2) only (1) and (3) only (2) & (3) only (1) , (2) and (3)

A B

C D

Page 31: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics31

(6) Which of the following statement on “want” is CORRECT?

If we are very rich, we can satisfy all our wants. Want refers to a desire as well as the ability to satisfy that desire. Because of unlimited wants, we cannot satisfy some of our wants. People are willing to give up some of their wants.

A

B

C

D

Page 32: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics32

(7) The cost of an act will be zero if …..

there is no money the act has no result there is no price there is no scarcity or there is no choice

A

B

C

D

Page 33: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics33

Remarks on Opportunity Cost

Only the highest valued option forgone is regarded as cost

Page 34: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics34

Would the cost change if:1. the watch does not function as well as expected?

2. The book is now half-priced?

Remarks on Opportunity Cost

Cost changes only if the highest valued option forgone changes.

Exercise 5: TB/P.11/MCQ 4

Page 35: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics35

How does the cost change if the songs on the CD is not as good as expected?

Remarks on Opportunity Cost

Change in value change in cost

Exercise 6: TB/P.12/Q 1.3Exercise 7: TB/P.12/MCQ 5

Closer Look: TB/P.2/1.9

Page 36: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics36

Economic Goods

A good is economic good if its quantity available is i____________________ to satisfy all our wants

Scarce resources are used in production More of it is p_______________ Quantity demanded (Qd) is larger than quanti

ty supplied (Qs) at zero price Commanding a positive price

– Examples: air conditioner & sport shoes

Page 37: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics37

Free Goods

A good is free good if its quantity available is s________________ to satisfy all our wants

No scarce resources are used in production More of it is NOT preferred Quantity demanded is smaller than quantity

supplied at zero price Commanding zero price Examples:

– Sea water & air on the earth

Page 38: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics38

Sea water Tap water

Free Goods? Economic Goods?

Exercise 8: TB/P.13/MCQ 6Exercise 9: TB/P.14/MCQ 7Closer Look: TB/P.15/1.10

Page 39: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics39

Free vs. Economic Goods

Free Goods Economic Goods

Produced without using scarce resources

Produced with scarce resources

More of it is NOT preferred

More of it is preferred

Zero production OC Positive production OC

Zero price Positive price

Qd < Qs at zero price Qd > Qs at zero price

Page 40: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics40

Consumer Goods

A consumer good is any good which satisfies human wants directly

They are produced for direct consumption

Examples:– air-conditioners used in classrooms– bread consumed by housewives

Page 41: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics41

Capital/Producer Goods

A capital good is any good that is used for producing other goods or services

They are produced for indirect consumption

Examples:– air-conditioners used at home– bread used as part of decoration in a bread

shop

Page 42: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics42

Consumer or Capital Goods?

Consumer

Goods

Page 43: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics43

Consumer or Capital Goods?

Capital G

oods

Page 44: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics44

Consumer vs. Capital Goods

Whether a good is consumer good or capital good is NOT classified by its nature, but by how and where it is being used.

Page 45: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics45

Basic Economic Problems

What to produce?– What kinds of product to be produced?– What quantity of it should be produced?

How to produce?– Which production method to be used?

For whom to produce?– How to distribute the quantity?– What criteria should be chosen?

Exercise 10: TB/P.16/MCQ 8

Page 46: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics46

Traditional Economy

Economic decisions are made by referring to customs and traditions

The three basic economic problems are being solved by following the practices of previous generations/ancestors.

Page 47: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics47

Planned/Command Economy

Most/All economic decisions are made by the central authority

Most of the productive resources are socially owned and under the control of the central government

The three basic economic problems are being solved by following a set of c__________________ and o___________.

Page 48: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics48What to produce?

Page 49: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics49

For whom to produce?

Page 50: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics50

Market Economy

Most/All economic decisions are made by individuals

Most of the productive resources are p________________ owned

The three basic economic problems are being solved by p__________ m____________________.

Page 51: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics51

Market Economy

What to produce?– Product prices serve as signals to direct the

producers to find out what to produce– Higher price ensures the most profitable kind of

products

Page 52: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics52

Page 53: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics53

Market Economy

How to produce?– Factor prices serve as signals to direct the

producers to identify the cheapest method of production

– Lower price ensures the least costly method of production or ensures the most profitable production

Page 54: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics54

Page 55: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics55

Market Economy

For whom to produce?– Prices determine who gets what and in what

quantity– Goods are distributed to those who are able and

willing to pay the highest price for it

Page 56: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics56Exercise 11: TB/P.19/MCQ 9

Page 57: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics57

Mixed Economy

NO pure planned or market economy All the economies are mixed economy which

contains both the features of planned and market economy

Resources are allocated by– market forces, commands and orders from the

authority, and traditions and customs

Exercise 12 & 13: TB/P.20/MCQ 11 & TB/P.20/Q 1.6

Page 58: HKCEE  Microeconomics

F.4 Economics CH1-The Nature of Economics58

Basic Circular Flow

Economics Clinic: TB/P.23-26