BU-204 Macro Economics – Week 2 Seminar

Welcome to

Overview

Welcome

Review of Week 1 Material

Questions

Unit 2 Material

Questions

Preview of Unit 3

End

Review of Unit 1

Scarcity

Opportunity Cost

Trade-Offs

Cost/Benefit

Marginal Cost Analysis

Limited resources

Choices must be made

Opportunity CostThe value of the next best alternative

Marginal analysis

Scarcity

Opportunity Cost

Retrieved from http://strom.clemenson.edu

Retrieved from www.stus.com

Example of cost of educationAnnual salary - $50,000 (Implicit)Tuition - $25,000 (Explicit)2 years of graduate school - $100,000 in

salary and $50,000 in tuition Total opportunity cost - $150,000

(Implicit & Explicit)Future marginal income of working life

should be higher

Opportunity Cost

Trade offs

Cost vs. Benefits

Marginal Cost Analysis

Efficiency in resource allocation

Analysis of benefits and costs of the marginal unit of good or input

Maximization of utility subject to a budget contraint

Questions

Overview

Welcome

Review of Week 1 Material

Questions

Unit 2 Material

Questions

Preview of Unit 3

End

Unit 2 Material

Economic Model

Production Possibilities Frontier

Comparative vs. Absolute Advantage

Circular Flow Diagram

Homework Assignment

Discussion Question

Economic Model

Unit 2 Material

Economic Model

Production Possibilities Frontier

Comparative vs. Absolute Advantage

Circular Flow Diagram

Homework Assignment

Discussion Question

Unit 2 Material

Economic Model

Production Possibilities Frontier

Comparative vs. Absolute Advantage

Circular Flow Diagram

Homework Assignment

Discussion Question

The simplest circular-flow model shows the interaction between households and firms. In this model, firms supply goods and services to households which, in turn supply factors of production to firms

Which of the following is a normative statement? We would all be better off it we could reduce our dependence on oil imports

Summary Points

• Reliance on finite supplies of foreign oil and on coal fired electric power plants causes ever increasing prices that we must pay for the oil and the deleterious effects on our environment from both as sources of greenhouse gasses contributing to global warming.There are several renewable sources of energy available to the world. These include:1. Wind power (both large scale wind turbines and household sized roof mounted wind turbines to co-generate electricity)

Discussion

• 2. Solar water heating (roof mounted solar collectors)3. Solar photovoltaic electric generation (solar cells mounted on roofs to co-generate electricity)4. Ocean wave generation of electricity5. In transportation, the development of all electric and hybrid electric cars

Discussion

• Positive vs. Normative Statements• Workers in Asia often work in sweatshop

conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing.

Assignment

• Positive vs. Normative Statements• Referring to the same situation in question

1, but instead of legislation banning the imports, assume that the government enacts a special tax on imported clothing that is so high that the selling price of the imports would be equal to the selling price of the same clothing made in America. This kind of tax is called a tariff and is enacted to protect domestic producers of the same items that can be imported at much lower costs.

Assignment

• A growing economy means that the economy is producing more and more “stuff”, either because it has more resources (workers), or uses those resources more productively (smarter, better workers, working with better machines and systems). A growing economy that produces more and more “stuff” normally means that the people have a higher and higher standard of living.

Assignment

• If the government adopts a “free trade” policy towards all imports, including the low cost clothing of question 1 and 2, in which it places no barriers to importing items, can that action help the economy to grow? Explain your answer. (10 points)

Assignment

Thank you for attending. I look forward to seeing you next week!