###Introduction to Economics PowerPoint Presentation###

Introduction to Economics

• The Economic Problem
• Opportunity Cost
• Production Possibility Frontiers

The Economic Problem

• Unlimited Wants
• Scarce Resources – Land, Labour, Capital
• Resource Use
• Choices

• A wind farm. Copyright: Getty Images, available from Education Image Gallery

The Economic Problem

• What goods and services should an economy produce? – should the emphasis be on agriculture, manufacturing or services, should it be on sport and leisure or housing?
• How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency?
• Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?

Opportunity Cost

• Definition – the cost expressed in terms of the next best alternative sacrificed
• Helps us view the true cost of decision making
• Implies valuing different choices

Production Possibility Frontiers

• Show the different combinations of goods and services that can be produced with a given amount of resources
• No ‘ideal’ point on the curve
• Any point inside the curve – suggests resources are not being utilised efficiently
• Any point outside the curve – not attainable with the current level of resources
• Useful to demonstrate economic growth and opportunity cost

Production Possibility Frontiers

• Capital Goods

• Consumer Goods

• Yo

• Xo

• A

• B

• Y1

• X1

• Assume a country can produce two types of goods with its resources – capital goods and consumer goods

• If it devotes all resources to capital goods it could produce a maximum of Ym.
• If it devotes all its resources to consumer goods it could produce a maximum of Xm

• Ym

• Xm

• If the country is at point A on the PPF It can produce the combination of Yo capital goods and Xo consumer goods

• If it reallocates its resources (moving round the PPF from A to B) it can produce more consumer goods but only at the expense of fewer capital goods. The opportunity cost of producing an extra Xo – X1 consumer goods is Yo – Y1 capital goods.

• Production Possibility Frontiers

• Capital Goods

• Consumer Goods

• Yo

• Xo

• A

• .B

• C

• Y1

• X1

• Production inside the PPF – e.g. point B means the country is not using all its resources

• It can only produce at points outside the PPF if it finds a way of expanding its resources or improves the productivity of those resources it already has. This will push the PPF further outwards.

Positive and Normative Economics

• Health care can be improved with more tax funding
• Pollution control is effective through a system of fines
• Society ought to provide homes for all
• Any strategy aimed at reducing factory closures in deprived areas would be helpful

• Positive Statements:
• Capable of being verified or refuted by resorting to fact or further investigation
• Normative Statements:
• Contains a value judgement which cannot be verified by resort to investigation or research