Copyright 2002, Pearson Education Canada 1 Principles of Macroeconomics 2nd Canadian Edition by Case, Fair, Strain, and Veall PowerPoint Presentation Slides to Accompany the Text By Mark Karscig, Central Missouri State University Peter Ibbott, Kings College - University of Western Ontario Richard E. Mueller, University of Lethbridge
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Copyright 2002, Pearson Education Canada1
Principles of Macroeconomics
2nd Canadian Edition by Case, Fair, Strain, and Veall
PowerPoint Presentation Slides to Accompany the Text
By Mark Karscig, Central Missouri State UniversityPeter Ibbott, Kings College - University of Western Ontario
Richard E. Mueller, University of Lethbridge
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The Scope and Methods of Economics
Chapter 1
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A Definition of Economics
Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.
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Another Definition of Economics
Economics is the study of how scarce resources are allocated among conflicting demands.
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Four Main Reasons to Study Economics...
To learn a way of thinkingTo understand societyTo understand global affairsTo be an informed voter
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1. To Learn a Way of Thinking...
Three Fundamental Concepts of Economic Thinking
Opportunity Cost Marginalism Information, Incentives, and Market
Coordinations
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Opportunity Costs
The opportunity cost of something is that which we give up when we make that choice or decision.
The implication is that all decisions involve trade-offs.
“There’s no such thing as a free lunch!!”
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Question to Consider
What is the opportunity cost of your attending university?
Include all forgone options in your consideration.
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Marginalism
In weighing the costs and benefits of a decision, it is important to weigh only the costs that are contingent upon the decision.
Do not include sunk costs Sunk costs are the costs that cannot be avoided,
regardless of what is done in the future, because they have already been incurred.
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Information, Incentives, and Market Coordination
Prices, wages, and profits in market economies have the capacity to provide the information and incentives to coordinate the decisions of individual decision-makers.
Are these market solutions always desirable? Perhaps not if they interfere with the public good,
and lead, for example, to poverty or environmental degradation.
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2. Understanding Society
Present and past economic decisions have an enormous influence on the character of life in a society.
The state of our physical environment, the level of material well-being, and the nature and number of jobs are all products of the economic system.
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3. To Understand Global Affairs
Impact of globalization, trade negotiationsEnd of apartheidGulf WarPoverty and Starvation in Africa and AsiaThe Asian TigersThe European UnionCollapse of the Soviet Union
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4. To be an informed voter…
Canadian politics is dominated by the debates over economic policy.
To critically assess the platform of each political party requires a basic understanding of economics.
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The Scope of Economics
Microeconomics
The branch of economics that examines the functioning of individual industries and the behaviour of individual decision-making units -- business firms and households and the effects of government economic policy on these units.
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The Scope of Economics
Macroeconomics
The branch of economics that examines the economic behaviour of aggregates -- income, employment, output and so on...
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The Scope of Economics (Table 1.1)
EXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS