Chapter 1 - limits, alternatives, and choices. In this chapter, you will learn to: Define economics and the features of the economic perspective, describe the role of economic theory in economics, distinguish microeconomics from macroeconomics and positive economics from normative economics, list the categories of scarce resources and delineate the nature of the economizing problem. | Limits, Alternatives, and Choices Chapter 1 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Economics defined Role of economic theory Microeconomics vs. macroeconomics Resource scarcity and the economizing problem Production possibilities model 1- Economics Defined Economic wants exceed productive capacity Social science concerned with making optimal choices under conditions of scarcity 1- The Economic Perspective Thinking like an economist Key features: Scarcity and choice Purposeful behavior Marginal analysis 1- Scarcity and Choice Resources are scarce Choices must be made There is no free lunch Opportunity cost 1- Purposeful Behavior Rational self-interest Individuals and utility Firms and profit Desired outcomes 1- Marginal Analysis Marginal benefit Marginal cost Marginal means extra Comparison of marginal benefit and marginal cost 1- Economic Models The scientific method Cause and effect Economic principles Simplification of reality Other-things-equal assumption Graphical expression 1- Macro vs. Micro Macroeconomics Aggregate Microeconomics Individual Units Positive Economics Normative Economics 1- Individual’s Economizing Problem Limited income Unlimited wants A budget line Tradeoffs & opportunity costs Make best choice possible Change in income 1- A Budget Line 6 5 4 3 2 1 0 0 2 4 6 8 10 12 DVDs $20 Books $10 12 10 8 6 4 2 0 2 4 6 8 10 12 14 $120 Budget Income = $120 Pdvd = $20 = 6 Income = $120 Pb = $10 = 12 Attainable Unattainable Quantity of Paperback Books Quantity of DVDs 1- Society’s Economizing Problem Scarce resources Land Labor Capital Entrepreneurial Ability Factors of production 1- Production Possibilities Model Illustrate production choices Assumptions: Full employment Fixed resources Fixed technology Two goods 1- Type of Product Pizzas (in hundred thousands) Industrial Robots (in thousands) . | Limits, Alternatives, and Choices Chapter 1 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Economics defined Role of economic theory Microeconomics vs. macroeconomics Resource scarcity and the economizing problem Production possibilities model 1- Economics Defined Economic wants exceed productive capacity Social science concerned with making optimal choices under conditions of scarcity 1- The Economic Perspective Thinking like an economist Key features: Scarcity and choice Purposeful behavior Marginal analysis 1- Scarcity and Choice Resources are scarce Choices must be made There is no free lunch Opportunity cost 1- Purposeful Behavior Rational self-interest Individuals and utility Firms and profit Desired outcomes 1- Marginal Analysis Marginal benefit Marginal cost Marginal means extra Comparison of marginal benefit and marginal cost 1- Economic Models The scientific .
