chap 1 peb3014-190911_125030

8/3/2019 chap 1 peb3014-190911_125030

1/22

2007 Prentice Hall Business Publishing; Essentials of Economics, R. Glenn Hubbard, Anthony Patrick OBrien

c h a p t e rc h a p t e ro n eo n e

Prepared by: Fernando & Yvonn Quijano

Economics:Foundations and Models

8/3/2019 chap 1 peb3014-190911_125030

2/22

4 of 28 2007 Prentice Hall Business Publishing; Essentials of Economics, R. Glenn Hubbard, Anthony Patrick OBrien

CHAPTER

1:Economics:

Foundatio

nsandModels

Economics: Foundations and Models

Scarcity The situation where unlimited wantsexceed the limited resources available to fulfill

those wants.

Economics The study of the choices peoplemake to attain their goals, given their scarceresources.

8/3/2019 chap 1 peb3014-190911_125030

3/22


CHAPTER

1:Economics:

Foundatio

nsandModels

Building a Foundation: Economics and Individual Decisions

LEARNING OBJECTIVE1

Market An arrangement or institution that bringstogether buyers and sellers of a good or service.

Marginal analysis Analysis that involvescomparing marginal benefits and marginal costs.

Three important ideas:

People are rational People respond to economic incentives

Optimal decisions are made at the margin

8/3/2019 chap 1 peb3014-190911_125030

4/22


CHAPTER

1:Economics:

Foundatio

nsandModels Apple Computer Makes a Decision at the Margin

1 - 1

LEARNING OBJECTIVE1

Should Apple produce an additional 300,000 iPods?

In solving the problem, consider the following: Optimal decisions are made at the margin.

An activity should be continued to the point

where the marginal benefit is equal to the

marginal cost. In this case, the correct decision requires

information about additional revenue and

additional cost.

8/3/2019 chap 1 peb3014-190911_125030

5/22


CHAPTER

1:Economic

s:

FoundationsandMode

ls

The Economic Problem That Every Society Must Solve

Trade-off The idea that because of scarcity,

producing more of one good or service means

producing less of another good or service.

Three fundamental questions:

What goods and services will be produced?

How will the goods and services be produced? Who will receive the goods and services

produced?

8/3/2019 chap 1 peb3014-190911_125030

6/22


CHAPTER

1:Economics:

Foundatio

nsandModels

The Economic Problem That Every Society Must Solve

Centrally planned economy An economy inwhich the government decides how economicresources will be allocated.

Market economy An economy in which thedecisions of households and firms interacting inmarkets allocate economic resources.

Centrally Planned Economies versus MarketEconomies

8/3/2019 chap 1 peb3014-190911_125030

7/22


CHAPTER

1:Economics:

Foundatio

nsandModels

The ModernMixedEconomy

Mixed economy An economy in whichmost economic decisions result from the

interaction of buyers and sellers in

markets, but where the government plays asignificant role in the allocation of

resources.

8/3/2019 chap 1 peb3014-190911_125030

8/22


CHAPTER

1:Economics:

Foundatio

nsandModels

Microeconomics and Macroeconomics

LEARNING OBJECTIVE4

Microeconomics The study of howhouseholds and businesses make choices,how they interact in markets, and how thegovernment attempts to influence theirchoices.

Macroeconomics The study of theeconomy as a whole, including topics such as

inflation, unemployment, and economicgrowth.

8/3/2019 chap 1 peb3014-190911_125030

9/22


CHAPTER

1:Economics:

Foundatio

nsandModels

Many countries, including the United States, have experienced

rapidly increasing exports to China.

The Halo Effect: How Chinas Expansion Will Affect Jobs and

Growth Elsewhere

8/3/2019 chap 1 peb3014-190911_125030

10/22


CHAPTER

1:Economics:

Foundatio

nsandModels

Allocative efficiency

Centrally planned economy

Economic model

Economic variableEconomics

Equity

Macroeconomics

Marginal analysis

Market

Market economy

Microeconomics

Mixed economy

Normative analysisPositive analysis

Productive efficiency

Scarcity

Trade-off

Voluntary exchange

8/3/2019 chap 1 peb3014-190911_125030

11/22


CHAPTER

1:Economics:

Foundatio

nsandModels

Appendix 1A:Using Graphs and Formulas

A graph is like a street mapit is a simplified version ofreality

8/3/2019 chap 1 peb3014-190911_125030

12/22


CHAPTER

1:Economics:

Foundatio

nsandModels


Graphs of One Variable1A - 1

Market Shares in the U.S.Automobile Market

8/3/2019 chap 1 peb3014-190911_125030

13/22


CHAPTER

1:Economics:

Foundatio

nsandModels


1A - 2

Time-Series Graphs

Graphs of One Variable

8/3/2019 chap 1 peb3014-190911_125030

14/22


CHAPTER

1:Economics:

Foundatio

nsandModels


Graphs of Two Variables

1A - 3Plotting Price and QuantityPoints in a Graph

8/3/2019 chap 1 peb3014-190911_125030

15/22


CHAPTER

1:Economics:

Foundatio

nsandModels


1A - 4Calculating the Slope of a Line

Graphs of Two VariablesSlopes of Lines

Run

Rise

x

y

tal axishe horizonvalue on tChange in

l axishe verticavalue on tChange inSlope

2.0

10

2

)5565(

)14$12($

of pizzaQuantity

pizzaofPriceSlope

8/3/2019 chap 1 peb3014-190911_125030

16/22


CHAPTER

1:Economics

:

Foundatio

nsandModels


1A - 5

Graphs of Two VariablesTaking Into Account More Than Two Variables on a Graph

Showing Three Variables on a

Graph

8/3/2019 chap 1 peb3014-190911_125030

17/22


CHAPTER1:Economics:

FoundationsandModels


1A - 6

Graphs of Two VariablesPositive and Negative Relationships

Graphing the Direct Relationshipbetween Income andConsumption Spending

8/3/2019 chap 1 peb3014-190911_125030

18/22


CHAPTER1:Economics:



1A - 7

Graphs of Two VariablesSlopes of Nonlinear Curves

The Slope of a Nonlinear Curve

8/3/2019 chap 1 peb3014-190911_125030

19/22


CHAPTER

1:Economics

:

Foundatio

nsandModels


FormulasFormula for a Percentage Change

100xGDP

GDPGDP2003

20032004

100x)periodfirsttheinValue

periodfirsttheinValue-periodsecondtheinValue(changePercentage

Using the growth of Gross Domestic Product(GDP) as an example:

8/3/2019 chap 1 peb3014-190911_125030

20/22


CHAPTER1:Economics:



1A - 8

Formulas

Formulas for the Areas of a Rectangle and a Triangle

Showing a Firms TotalRevenue on a Graph

heightxbaserectangleaofArea

8/3/2019 chap 1 peb3014-190911_125030

21/22


CHAPTER

1:Economics

:

Foundatio

nsandModels


1A - 9

FormulasFormulas for the Areas of a Rectangle and a Triangle

The Area of a Right Triangle

heightxbasextrianglerightaofArea 1/2

A di A

8/3/2019 chap 1 peb3014-190911_125030

22/22

CHAPTER

1:Economics

:

Foundatio

nsandModels


FormulasSummary of Using Formulas

Whenever you must use a formula, you should follow these

steps:

1. Make sure you understand the economic concept

that the formula represents.

2. Make sure that you are using the correct formula

for the problem you are solving.

3. Make sure that the number you calculate using theformula is economically reasonable. For example,

if you are using a formula to calculate a firms

revenue and your answer is a negative number, you

know you made a mistake somewhere.

chap 1 peb3014-190911_125030

Documents