1 PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
1 PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned,
Dec 21, 2015
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1
PowerPoint Slides prepared by: Andreea CHIRITESCU
Eastern Illinois University
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
PowerPoint Slides prepared by: Andreea CHIRITESCU
Eastern Illinois University2
What is economics?
Why does public discussion of economic policy so often show the abysmal ignorance of the participants? Why do I so often want to cry at what public figures, the press, and television commentators say about economic affairs?
ROBERT M. SOLOW, WINNER OF THE1987 NOBEL PRIZE IN ECONOMICS
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ideas for Beyond the Final Exam
1. How much does it really cost?– Opportunity cost of a decision
• The value of the next best alternative that must be given up because of that decision
2. Attempts to repeal laws of supply & demand - Market strikes back
– Price ceilings
– Price floors
3© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ideas for Beyond the Final Exam
3. Surprising principle: comparative advantage – Law of comparative advantage
4. Trade is a win-win situation– Voluntary trade – all parties gain
5. Importance of thinking at the margin– Marginal analysis
• Marginal costs• Marginal benefits
4© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ideas for Beyond the Final Exam
6. Externalities – a shortcoming of market cured by market methods – Externalities – social costs
• Affect parties external to the economic transactions that cause them
7. Trade-off between efficiency and equality
5© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ideas for Beyond the Final Exam
8. Government policies can limit economic fluctuations - but don’t always succeed – Fiscal policy
• Control over taxes and government spending
– Monetary policy• Control over money and interest rates
6© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ideas for Beyond the Final Exam
9. Short-run trade-off between inflation & unemployment – Low unemployment normally makes
inflation rise
– High unemployment normally makes inflation fall
7© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ideas for Beyond the Final Exam
10. Productivity growth is (almost) everything in the long run – Small increase in productivity growth
• Can have a huge effect on a country’s standard of living over a long period of time
– Slowdown in productivity growth that persists for a substantial number of years • Devastating effect on living standards
8© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Inside the Economist’s Tool Kit
• Economics as a discipline– Mathematical reasoning
– Historical study
– Statistics
• Need for abstraction– Abstraction from unimportant details =
necessary to understand the functioning of anything as complex as the economy
9© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Map 1Detailed Road Map of Los Angeles
10© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Map 2Major Los Angeles Arteries and Freeways
11© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Inside the Economist’s Tool Kit
• Abstraction– Ignoring many details so as to focus on
the most important elements of a problem
• Proper degree of abstraction– Depends on the objective of the analysis
12© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Map 3Greater Los Angeles Freeways
13© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Inside the Economist’s Tool Kit
• Theory– Deliberate simplification of reality
– Explain how relationships work
• Statistical correlation– Variables - go up or down together
– Need not imply causation
14© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Inside the Economist’s Tool Kit
• Economic model– Simplification - aspect of economy
– Expressed• Equations• Graphs• Words
• Disagreements– Imperfect information
– Value judgments
15© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Economic graphs– Large quantity of data - quickly
– Facilitate data interpretation & analysis
– At a glance• Important statistical relationships
• Variable– Measured by a number
– Analyze what happens to other things when the size of that number changes
16© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Two-variable diagrams– Horizontal axis
– Vertical axis
– Origin : The “0” point in the lower-left corner of a graph where the axes meet• Both variables are equal to zero
– Abstract
– Focus• Two variables of primary interest
17© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 1Hypothetical demand curve for natural gas: St. Louis
18
Quantity
20 40 60 80 100 120 1400
Pric
e
1
2
3
4
5
6
b
Q
P
(a)
Quantity
20 40 60 80 100 120 1400P
rice
1
2
3
4
5
6
Q
P
(b)
a
D
a
b
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Table 1Quantities of natural gas demanded at various prices
19© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Slope of straight line– Ratio: vertical change “rise”
– To: horizontal change “run”
• Negative slope– One variable falls, other rises
• Positive slope– Both variables rise
20© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 2Different types of slope of a straight-line graph
21
(a)
Y
X0
(b)
Y
X0
(c)
Y
X0 (d)
Y
X0
Negative slope
Positive slope
Zero slopeInfinite
slope
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Zero slope– Y value doesn’t change
• Infinite slope– X value doesn’t change
• Slope of straight line– Same numerical value
22© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 3How to measure slope
23
(a)
Y
X0
(b)
Slope = 1/10
133
89
A
C
B
Y
X0
Slope = 3/10
133
8
11
A
C
B
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Slope of a curved line– Different numerical value
– At one point• Slope of tangent (straight line)
24© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 4Behavior of slopes in curved graphs
25
(a)
Y
X0
(b)
Y
X0
(c)
Y
X0 (d)
Y
X0
Negative slope Positive slope
Positive
slope
Negative
slope
Negative
slope Positive
slope
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 5How to measure slope at a point on a curved graph
26
E
X1 2 3 4 5 6 70 8 9 10
Y
1
2
3
4
5
6
7
8 r
rT
R
G
M
t
tB
F
A
C
D
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Y-intercept• X-intercept• Ray through origin
– Y-intercept = zero
• 45° lines– Rays through origin
– Slope = 1
– Angle = 45° with the horizontal axis
– X=Y27© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 6Rays through the origin
28
X1 2 30 4 5
Y
1
2
3
4
5
A
B
K
E
D
CSlope = +1
Slope = +1/2
Slope = +2
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Contour map (topographical map) – Three pieces of data
• Latitude• Longitude• Altitude
29© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 7A geographic contour map
30© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix Using graphs: a review
• Production indifference map– Axes - quantities of two inputs used to
produce some output
– Curve - given quantity of output• Points on curve = different quantities of two
inputs just enough to produce the given output
31© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Figure 8An economic contour map
32
Labor hours per day
10 20 30 40 50 60 700 80X
Y
10
20
30
40
50
60
70
80
Yar
ds o
f cl
oth
per
day
Z = 10
Z = 20
Z = 40
Z = 30
A
B
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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