Intro to Econsv2

8/2/2019 Intro to Econsv2

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Introduction to Economics

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notes, try to solve problems and answer thereview questions.

Learning is MOST efficient when YOU are active.


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Contents

1. Some learning skills

2. Definitions of economics

3. Production Possibilities

7. Scarcity a key idea

5. Positive and normative economics

4. The division of labour

6. Capital and consumption goods trade-off

8. Guide to essay writing in economics this can be foundon the Matrix to learning


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Learning Skills

Vocabulary building a glossary using Word or similar.

My Glossary.doc

Asking questionsExcuse me I do not understand, canyou repeat that

Do not attempt (try) a task if you are not clear (sure)what to do.

Develop note taking skills.

Undertake (do) regular reading check words you donot understand.

Learning is like ajigsaw you cannot really appreciatethe picture if there are pieces missing!
http://h/Resources/My%20Glossary.dochttp://h/Resources/My%20Glossary.doc


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Learning Skills [contd]

Practice makes perfect Frequent revision revision

Vision the ability to see

Re look again

.. and now some economics!


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What is economics?

Write down your current (now) understanding.

An authoritative definition a definition by arespected person (an authority)


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7

Economics

The study of mankind in the ordinary business of life,choosing between ends and scarce means that havealternative uses. Lionel Robbins

The study of how society uses its scarce resources.


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Adam Smith

1776 An Inquiry into the Nature and Causes of theWealth of Nations


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The Division of Labour

Wealth of Nations Book 1 Chapter 1 Pin factory 18 distinct operations

One man 1 to 20 nails a day

With division of labour 10 men 48,000 = 4800 per

worker


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Advantages of the division of labour

1. Output increases significantly (productivity increases)2. More intensive use of machines (capital)

3. Workers require less training (reduced costs)

4. Time is saved (costs)

5. Workers MAY develop expertisepractice makesperfect

6. Smaller tasks may help the development of machinery


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Disadvantages of the division of labour

1. Monotonous work2. Workers have fewer skills and are vulnerable when

changes occur

3. Quality may suffer (see 1 above)


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Economics as a social science

In the physical sciences knowledge of the worldaccumulates.

The world was assumed to be flat, this was provedincorrect.

The world was recognised as being a sphere.

Maps were developed to explain the topography ofthe world.

Each step in the physical sciences builds on previousknowledge.

Economics is different; although we can build onprevious knowledge our understanding of humanbehaviour is not complete.

The views of economists can and do differ.


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Models

It is important to develop YOUR understanding of theeconomic world.

Models are graphical representations of ideas and areuseful tools of analysis.

A useful method of revision is to check yourunderstanding of models and practise using them forANALYSIS.

Always remember ALL models have simplifying

ASSUMPTIONS. The real world is complex, dynamic and interconnected.

Be careful about drawing conclusions from THEORY.


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Vocabulary

Opportunity Cost Ceteris paribus

Microeconomics

Macroeconomics

Economic theory/model Independent variable

Dependent variable



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An AUTHORITATIVE definition of economics.

The study of mankind in the ordinarybusiness of life, choosing between endsand scarce means that have alternativeuses. Lionel Robbins



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Science or study

Detailed enquiry or investigation. Asking the questions; Why do things happen this way?

Why are some people rich and some people poor?

Careful and logical process classifying actions and

events in a complex world



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Mankind, society, economies

A study of human behaviour;A SOCIAL SCIENCE

Economic has been described as the queen of

the social sciences.

The most important human activity is survival.



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Ends goods and services

Human needs: Food (and drink)

Clothing

Shelter

Human wants: Everything thats not a need



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The Factors of Production (scarce means)

LAND physical space, natural resources, finiteresources, renewable resources.

LABOUR human effort physical and mental

CAPITAL (MOSTLY) tools and machinery but alsomoney

Enterprise (the entrepreneur) the organiser and risktaker

The factors of production are SCARCE in RELATION tothe needs and wants of human kind.



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The science of choice

The resources to produce goods are limited whencompared with the number of goods and services wewould like to produce. For example;

How may we use the resource tree/lumber/timber?

Continue to the next slide



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Mr. Tree

Hi, how manyuses can you

think of for me?BYE, BYE

Timber

Lumber



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Did you think of thisone?



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Scarcity scarce resources

One tree paper, fire wood, furniture, floor boards,source of leisure activity (environmentally important.) etcetera, et cetera, et cetera [etc]

Productive resources

The problem of scarcity.

Scarce not the same meaning as in ordinary use!BEWARE.

Some scarce resources are FINITE they will eventuallyrun out e.g. oil (hydrocarbon fuel).

Some scarce resources are RENEWABLE they can bereplaced e.g. timber, recycled materials



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Scarcitymeans that

there are limitedresources, andtherefore, peoplemust make choices.Look at the pictures

on the right. Whichpictures showscarcity?

1)

2)

3)Press here for

answers



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Answers

Both 1 and 2 show issues of scarcity. One cake twopeople, the second picture shows a number of peopleand a basket of cherries. Choice will have to made todecide who gets the cherries even shares, or someother pattern of distribution

Number three shows one child and one toy and theproblem of scarcity is not immediately obvious.



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Definitions

Full answers CLEAR explanations

Opportunity Cost: the SACRIFICE of the next bestalternative

Ceteris paribus: (Latin) other things being equal usedin theory other variables do not change

SCARCE the key idea in economics. Resources maybe described as scarce when there are many uses for aspecific resource. For example a tree.



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Definitions

Independent variable: a quantity that can be changed byfactors not under consideration. For example pricechange may be caused by a variety of influences.

Dependent variable: a quantity whose value depends onchanges in other variables. For example the amount bebuy (QUANTITY) depends on price.



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Review

How can you define economics?

What is opportunity cost?

What does ceteris paribus mean?

Last year a man bought a bicycle for 300. Today the

bicycle is worth 180. What is the current opportunitycost the bike?

What do we mean by the division of labour?



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Review 2

What is macroeconomics about? What is microeconomics about?

The amount we buy is influenced by price. In thisrelationship which is the dependent and which is theindependent variable?

Write down the FACTORS that may influence thedecision to buy?



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Production Possibility Curve

Has a number of different names: Production Possibility Boundary

Production Possibility Frontier (PPF or PPC)

Production Transformation Curve

The PPF is a very useful tool it can be used to illustrate anumber of economic events.



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Production Possibility Model

Purpose of the model Show scarcity constraint

Illustrate economic efficiency

Introduce and illustrate the concept of opportunity

cost



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PPF defined

The Production Possibility Curve (or frontier) shows themaximum amount of two goods/services that can beproduced, given the total amounts of inputs available,and given the technology of production in a fixed periodof time.

Another word/expression for INPUTS? Ceteris paribus the state of technology is constant.

Inputs = factors

of production



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List an economys factors of production.

LAND physical space, natural resources, finiteresources, renewable resources.

LABOUR human effort physical and mental

CAPITAL (MOSTLY) tools and machinery but also

money Enterprise (the entrepreneur) the organiser and risk

taker.



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SU O CO S

Production Possibility Curve

The production possibility curve is a GRAPHICALrepresentation [MODEL] showing various maximumcombinations of output a nation can produce with limitedeconomic resources in a fixed period of time.



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Plot the following

*Note how the table can be converted (changed) into a

GRAPHICAL representation. Graphs or models ineconomics are very useful.

Agricultural Goods Manufactured

(Y axis) Goods (X axis)0 60

1 58

2 55

3 504 42

5 30

6 0

OR



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y

x0

Negative gradient(slope)



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y

x0

Positive gradient(slope)



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y

x0

concave to the origin



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y

x0

CONVEX to theorigin



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PRODUCTION POSSIBILITY CURVEAgriculturalGoods

Manufactured Goods

Show a point that is attainableand a point that is unattainable?

0

100

200

300

400

10 20 30 40 50 60



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PRODUCTION POSSIBILITY CURVEAgriculturalGoods

Manufactured Goods

attainable

unattainable

0

100

200

300

400

10 20 30 40 50 60



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PRODUCTION POSSIBILITY CURVE

Agricultural

Goods

Manufactured Goods

Whats the effect of an improvement

in the technology for producingagricultural goods?

0

100

200

300

400

10 20 30 40 50 60



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Agricultural

Goods

Manufactured Goods

0

100

200

300

400

10 20 30 40 50 60



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Agricultural

Goods

Manufactured Goods

Whats the effect of an increase in

total resources (inputs)?

0

100

200

300

400

10 20 30 40 50 60



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Agricultural

Goods

Manufactured Goods

How can an economyincrease the quantity offactors of production(resources)?

0

100

200

300

400

10 20 30 40 50 60



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Production Possibilities Frontier

A through Fareattainable and efficient

Irepresents inefficient

use of resources Urepresents

unattainablecombinations



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Shifts in the PPF

Increase in available resources Decrease in available resources



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What does this PPF suggest?

FOOD

(millions of

units)

Cloth (millions of tonnes)

0

y

x



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What does the PPC tell us?

Points inside the PPC are inefficient.

For any point inside there corresponds some

point that represents more production of bothgoods.

Note that while points on the PPC are efficient,we cannot say at this time whether some arebetter for society than others.



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Why is the PPFthis shape?

(concave to the

origin)



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Answer the following questions - 5 minutes

Good A

Good B

10

8

4 5

U

X

1. What does point X show?[Answer]

2. If the production of goodA increase by one unit what

is the opportunity cost?[Answer]

3. What does point U

illustrate? [Answer]

4. What does point Killustrate? [Answer]

K

0



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Answers

1. Unattainable or impossible combinations of goods Aand B at this moment in time.

2. The opportunity cost is 2 units of good B

3. Point U shows an INEFFICIENT combination of goods

and services. This may be because resources (factorsof production) are UNEMPLOYED or resources arebeing wasted.

4. Point K and all other points on the production possibilitycurve show the maximum amount of goods that can beCURRENTLY produced. All points are



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Test Questions [15 minutes]

Use a PPF to show the difference between a rich countryand a poor country [5]

A country can make guns or butter. Its factors ofproduction are mostly efficient at agricultural production.Show this on a PPF model [5]

Define economics [2]

What are the factors of production? [4]



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Explain the Shape of the Production PossibilityCurve

Resources are not equallysuited to the production ofboth goods. As we increasethe production of Good A, we

begin to use resources bestsuited for good B causingIncreasing Opportunity Costand therefore the slope of thefrontier get steeper.

Good A

Good B



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Explain Shifts in the Production PossibilityCurve

Shift result from a change in

technology or the availability

of resources. Decreases shift

in, increases shift out. If thechange affects only one

product, the shift will only be

along one axis.



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Capital/Consumer Good Trade Off

The opportunity

cost of futuregrowth is lessconsumer goods inthe present, going

from point A to B

Capital

goods and

services

Consumer goods and

services

A

B

0

If combination A ischosen the economywill GROW in thenext time period andthe PPF will moveoutwards.

If point B is chosenmore capital will

increase theeconomys

capacity to grow.



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Economics trains you to. . . .

Think in terms of alternatives.

Evaluate the cost of individual and _ _ _ _ _choices.

Examine and understand how certain eventsand issues are _ _ _ _ _ _ _.



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Think in terms of alternatives.

Evaluate the cost of individual andsocialchoices.

Examine and understand how certain eventsand issues arerelated.



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The Economist as a Scientist

The economic way of thinking . . .

Involves thinking analyticallyandobjectively.

Makes use of thescientific method.



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The Scientific Method

Uses abstract_ _ _ _ _ _ to help explainhow a _ _ _ _ _ _ _ _, real world operates.

Develops _ _ _ _ _ _ _ _, collects, and

analyses data to prove the theories.



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The Scientific Method

Uses abstract models to help explainhow a complex, real world operates.

Develops theories, collects, andanalyses data to prove the theories.

Observation, Theory and More Observation!



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The Role of Assumptions

Economists make _ _ _ _ _ _ _ _ _ _ _ in order tomake the world easier to understand.

The art in scientific thinking is deciding which _ _

_ _ _ _ _ _ _ _ _ to make.Economists use different _ _ _ _ _

_ _ _ _ _ _ to answer different questions.



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Economists make _ _ _ _ _ _ _ _ _ _ _ in order tomake the world easier to understand.

The art in scientific thinking is deciding which _ _

_ _ _ _ _ _ _ _ _ to make.Economists use different _ _ _ _ _

_ _ _ _ _ _ to answer different questions.



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Economists make ASSUMPTIONS in order tomake the world easier to understand.

The art in scientific thinking is deciding which

assumptions to make.Economists use different assumptions to answer

different questions.


Which of the following is not a factor of


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Which of the following is not a factor ofproduction?

a) A computerb) An economics teacher

c) A S$100 bank note

d) A coal mine

DA B C



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Economic Models

Economists use _ _ _ _ _ _ to simplify reality in order toimprove our understanding of the world

Example:

The Production Possibility Frontier



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The Production PossibilityFrontier/Boundary

The production possibilities frontier is a MODELshowing the various combinations of output that the

economy can possibly produce given the availablefactors of production and technology.



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The Production Possibilities Frontier

Quantity ofComputersProduced

Quantity ofCars Produced

3,000

0 1,000

2,000

700

1,000

300

A

B

2,200

600

C

D



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The Production Possibilities Frontier

Quantity ofComputersProduced


3,000

1,000

2,000

2,200A

7006003000 1,000

B

C

D

Productionpossibilitiesfrontier

Explain whatyou think can be

shown using

points A, B, C, D



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Concepts/Ideas Illustrated by the Production PossibilitiesFrontier

EfficiencyTradeoffs

Opportunity Cost

Economic Growth

Draw 4 models to showthese concepts/ideas


The ProductionQuantity


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4,000

The ProductionPossibilities Frontier

Quantityof ComputersProduced


3,000

2,000A

700

0

1,000

E2,100

750

An outward shift inthe productionpossibilities frontier

How can you

explain this

shift?



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Economics is the study of

a) How to read the Wall Street Journalb) How to allocate unlimited resource to limited wants.

c) How to meet the needs of society

d) How to allocate limited resources to unlimited wants.

Click on a letter below to find the answer

A B C D



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Microeconomics and Macroeconomics

Microeconomics focuses on the individualparts of the economy.

How households and firms make decisionsand how they interact in specific markets

Macroeconomicslooks at the economy as awhole.

How the markets, as a whole, interact at

the national level.



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Two Roles of EconomistsWhen they are trying to explain the world, they

are scientists.

When they are trying to change the world, theyare policymakers.



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Make a list of the problems in Singapore that aneconomist could help solve?

Unemployment Rising prices INFLATION

International trade Singapore has a large tradeSURPLUS

Economic Growth show this on a PPF model. Distribution of income the gap between the rich and

the poor.

Housing problems SUPPLY and price - this is related

to INTEREST RATES



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Positive versus Normative Analysis

Positive statements are statements thatdescribe the world as it is.

Called descriptiveanalysis

Normative statements are statements abouthow the world should be.

Called prescriptiveanalysis



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?

?Positive or Normative Statements?An increase in the minimum wage will cause adecrease in employment among the least-skilled.

Higher government budget deficits will cause

interest rates to increase.



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?

? ?

?

Positive or Normative Statements?

The income gains from a higher minimum wageare worth more than any slight reductions inemployment.

Governments should be allowed to collect fromtobacco companies the costs of treating

smoking-related illnesses among the poor.



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An economy FACILITATES which of the following?

a) What to produce?

b) How to produce?

c) Who receives the benefits of production?

d) All of the above.

A B C D

Click on a letter to find the answer



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Economists in Government . . .

. . . serve as advisers in the policymakingprocess of the three branches of government:

Legislative

Executive

Judicial


S


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Summary

In order to address subjects with objectivity,economics makes use of the scientific method.

The field of economics is divided into twosubfields: microeconomics andmacroeconomics.


S


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Summary

Economics relies on both positive and normativeanalysis. Positive statements assert how theworld is while normative statements assert how

the world should be.

Economists may offer conflicting advice due todifferences in scientific judgments or to differencesin values.



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Thats all folks!!



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