Chapter 1 Introduction to Economics

7/21/2019 Chapter 1 Introduction to Economics

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2007 Thomson South-Western

PowerPoint Lecture Presentation to accompany

Principles of Macroeconomics,Malaysia EditionN. Gregory Mankiw, Goh Soo Khoon, Ong way !oon, "en Siew wa, #heng Ming "u,

Mus$afarshah Moh% Mustafa, "&onne Lee Lean 'e

Prepare% (y Kathryn Nant$ an% Laurence Miners )*airfiel% +ni&ersity, Goh Soo Khoon - "en Siew wa )+SM, Mus$afarshah Moh% Mustafa )++M,

Ong way !oon - "&onne Lee Lean 'e )MM+, #heng Ming "u )+/0,

2011 Cenae South-Western


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2 2011 Cengage South-Western


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. . . The word economycomes from a Greek

word for one who manages a household.

'conomy. . .

2011 Cengage South-Western


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TE !"#$#!%ES &' E$&&(#$S

) household and an econom* face man* dec+s+ons,

Who w+ll work

What goods and how man* of them should e

/roduced

What resources should e used +n /roduct+on

)t what /r+ce should the goods e sold



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TE !"#$#!%ES &' E$&&(#$S

Soc+et* and Scarce "esources,

The management of soc+et*1s resources +s

+m/ortant ecause resources are scarce.

Scarcity. . . means that soc+et* has l+m+ted

resources and therefore cannot /roduce all the

goods and ser+ces /eo/le w+sh to hae.



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TE !"#$#!%ES &' E$&&(#$S

Economics+s the stud* of how soc+et* manages

+ts scarce resources.



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There +s no such th+ng as a free lunch6

Principle 123 People *ace ra%e4offs.



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Making decisions requires tradingoff one goal against another.

Principle 123 People *ace ra%e4offs.

To get one th+ng we usuall* hae to g+e u/

another th+ng.

8+c*cle . utter

'ood . cloth+ng

%e+sure t+me . work

Eff+c+enc* . e9u+t*



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Principle 123 People *ace ra%e4offs

Eff+c+enc* . E9u+t*

Efficiencymeans soc+et* gets the most that +t can

from +ts scarce resources.

Equitymeans the enef+ts of those resources ared+str+uted fa+rl* among the memers of soc+et*.




Principle 153 he #ost of Something 6s7hat "ou Gi&e +p to Get 6t.

5ec+s+ons re9u+re com/ar+ng costs and enef+ts

of alternat+es.

Whether to go to college or to work

Whether to stud* or go out on a date

Whether to go to class or slee/ +n

The opportunity costof an +tem +s what *oug+e u/ to ota+n that +tem.

2011 Cenae South-Western



Principle 153 he #ost of Something 6s 7hat "ou Gi&e+p to Get 6t.

World S9uash

$ham/+on +col 5a+d

understands o//ortun+t*

costs and incentives.She dec+ded to /ut on

hold her academ+c

+nterests to concentrate

on s9uash where sheearns hundreds of

thousands of r+ngg+t.




Marginal changesare small +ncrementalad:ustments to an e;+st+ng /lan of act+on.

People make decisions by comparing

costs and benefits at the margin.

Principle 183 0ational People hink at theMargin.




Principle 193 People 0espon% to6ncenti&es.

(arg+nal changes +n costs or enef+ts mot+ate

/eo/le to res/ond.

The dec+s+on to choose one alternat+e oer

another occurs when that alternat+e1s marg+nal

enef+ts e;ceed +ts marg+nal costs6




3&W !E&!%E #TE")$T

Trade can make eer*one etter off.

(arkets are usuall* a good wa* to organ+



Principle 1:3 ra%e #an Make '&eryone!etter Off.

!eo/le ga+n from the+r a+l+t* to trade w+th one

another.

$om/et+t+on results +n ga+ns from trad+ng.

Trade allows /eo/le to s/ec+al+



Principle 1;3 Markets /re +sually a Goo%7ay to Organi$e 'conomic /cti&ity.

) market economy+s an econom* that allocates

resources through the decentral+



Principle 1;3 Markets /re +sually a Goo%7ay to Organi$e 'conomic /cti&ity.

)dam Sm+th made the oserat+on that

households and f+rms +nteract+ng +n markets act

as +f gu+ded * an +n+s+le hand.

8ecause households and f+rms look at /r+ces whendec+d+ng what to u* and sell the* unknow+ngl*

take +nto account the soc+al costs of the+r act+ons.

)s a result /r+ces gu+de dec+s+on makers to reachoutcomes that tend to ma;+m+



Principle 1goernment can +nterene to /romote eff+c+enc*

and e9u+t*.




Principle 1



3&W T3E E$&&(? )S )

W3&%E W&"4S ) countr*1s standard of l++ng de/ends on +ts

a+l+t* to /roduce goods and ser+ces.

!r+ces r+se when the goernment /r+nts too

much mone*.

Soc+et* faces a short-run trade-off etween

+nflat+on and unem/lo*ment.




Principle 1=3 / #ountry>s Stan%ar% of Li&ing?epen%s on 6ts /(ility to Pro%uce Goo%s an%Ser&ices.

Standard of l++ng ma* e measured +n d+fferent

wa*s,

8* com/ar+ng /ersonal +ncomes.

8* com/ar+ng the total market alue of a nat+on1s/roduct+on.





)lmost all ar+at+ons +n l++ng standards aree;/la+ned * d+fferences +n countr+es1

/roduct++t+es.

Productivity+s the amount of goods andser+ces /roduced from each hour of a worker1s

t+me.





Standard of l++ng ma* e measured +n d+fferentwa*s,

8* com/ar+ng /ersonal +ncomes.

8* com/ar+ng the total market alue of a nat+on1s/roduct+on.




Principle 1@3 Prices 0ise 7hen theGo&ernment Prints oo Much Money.

Inflation+s an +ncrease +n the oerall leel of/r+ces +n the econom*.

&ne cause of +nflat+on +s the growth +n the

9uant+t* of mone*.

When the goernment creates large 9uant+t+es

of mone* the alue of the mone* falls.



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Principle 12A3 Society *aces a Short4run ra%e4off (etween 6nflation an% +nemployment.

The !h+ll+/s $ure +llustrates the trade-offetween +nflat+on and unem/lo*ment,

#nflat+on or @nem/lo*ment

#t1s a short-run trade-off6

The trade-off /la*s a ke* role +n the anal*s+s of the

usiness cycleAfluctuat+ons +n econom+c act++t*

such as em/lo*ment and /roduct+on



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Summary


The /r+nc+/les of /ersonal dec+s+on mak+ng

are,

B!eo/le face trade-offs.

BThe cost of someth+ng +s what *ou g+e u/ to get

+t.

B"at+onal /eo/le th+nk at the marg+n.

B!eo/le res/ond to +ncent+es.



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Summary


The /r+nc+/les of econom+c +nteract+on are,

BTrade can make eer*one etter off.

B(arkets are usuall* a good wa* to organ+


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Summary

The /r+nc+/les of the econom* as a whole are,

B) countr*1s standard of l++ng de/ends on +ts

a+l+t* to /roduce goods and ser+ces.

B!r+ces r+se when the goernment /r+nts too much

mone*.

BSoc+et* faces a short-run trade-off etween

+nflat+on and unem/lo*ment.

Chapter 1 Introduction to Economics

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Transcript of Chapter 1 Introduction to Economics