The study of economics explains how

productive resources are used to

provide the goods and services that

satisfy human wants and needs.

Scarcity is the fundamental economic

problem facing all societies. We have

limited resources and unlimited needs

and wants.

Human

Natural

Capital

Needs:

Food

Shelter

Clothing

Land (natural resources)

Labor (human resources)

Capital (equipment, machinery)

Entrepreneurship

What goods and services will be

produced?

How will goods and services be

produced?

Who will consume the goods and

services? (How should it be shared?)

Economics is considered a social

science. Why?

What do economists do?

What is the difference between

microeconomics and macroeconomics?

Microeconomics and Macroeconomics

• Microeconomics

• Decision making by individual

units

• Macroeconomics

• Examines either the economy

as a whole or its basic

subdivisions or aggregates

LO3 1-9

Positive and Normative Economics

• Positive economics

• Deals with economic facts

• Normative economics

• A subjective perspective of

the economy

LO3 1-10

Theories, Principles, and Models

• The scientific method

• Economic principles

•Generalizations

•Other-things-equal assumption

•Graphical expression

Observe Formulate a hypothesis Test the hypothesis

Accept, reject, or modify the hypothesis

Continue to test the hypothesis, if necessary

LO2 1-11

Technology

Specialization

Division of Labor

Trade-off

Opportunity Cost

Production Possibilities Curve (PPC)

Type of Product

Pizzas(in hundred thousands)

Industrial Robots(in thousands)

Production Alternatives

A B C D E

10 9 7 4 0

0 1 2 3 4

Plot the Points to Create the Graph…

Production Possibilities Model

LO5 1-14

Pizzas

Ind

ust

rial

Ro

bo

ts

Attainable

0 1 2 3 4 5 6 7 8 9

14

13

12

11

10

9

8

7

6

5

4

3

2

1

Unattainable

A

B

C

D

E

U

The law of

increasing

opportunity

costs makes

the PPC

concave.

Production Possibilities Model

LO5 1-15

A Growing Economy

Pizzas

Ind

ust

rial

Ro

bo

ts

Attainable

0 1 2 3 4 5 6 7 8 9

14

13

12

11

10

9

8

7

6

5

4

3

2

1

Unattainable

A

B

C

D

E

EconomicGrowth

Now Attainable

A’

B’

C’

D’

E’

LO6 1-16

Present Choices, Future Possibilities

Goods for the Present

Go

od

s fo

r th

e F

utu

re

Go

od

s fo

r th

e F

utu

re

Goods for the Present

P

F

CurrentCurve

CurrentCurve

FutureCurve

FutureCurve

Presentville Futureville

Compare Two Hypothetical Economies

LO6 1-17