BB107 PPT Microecon CH01 6 
1
Limits, Alternatives, and
Choices
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Introduction
•
LO1
Economics defined:
•
Briefly: Economic wants exceed productive capacity.
•
A social science concerned with making “optimal choices” under conditions of
“scarcity”.
The Economic Perspective
•
•
LO1
Thinking like an economist
Key features (of economic perspective): •
Scarcity and choice(next slide) •
Rational self-interest(max. satisfaction) •
Marginal analysis
Scarcity and Choice
•
•
•
Resources are scarce
Choices must be made
Opportunity cost
Defn :the value of the best alternative forgone (or the value of the next-highest-valued alternative use of that resource)
•
LO1
There’s no free lunch
Purposeful Behavior
LO1
•
Rational self-interest (max. utility) •
•
•
Individuals and utility
Firms and profit
Desired(preferred) outcomes
Marginal Analysis
•
•
•
•
LO1
Marginal benefit
Marginal cost
Marginal means “extra”
Comparison between marginal benefit and marginal cost
Theories, Principles, and Models
•
The scientific method:
Observe
Formulate a hypothesis
Test the hypothesis
Accept, reject, or modify the hypothesis
Continue to test the hypothesis, if necessary
•
LO2
Economic principles
•
•
Generalizations
•
Graphical expression
All other things held constant (otherthings-equal) assumption
•
Microeconomics and
Macroeconomics
Microeconomics
•
•
Macroeconomics
•
LO3
Decision making by individual units Aggregate component
Positive and Normative Economics
•
Positive economics
•
•
Normative economics
•
LO3
Deals with economic facts
A subjective perspective of the economy
Individual’s Economizing Problem
•
•
•
Limited income
Unlimited wants
A budget line
•
•
•
•
LO4
Attainable and unattainable options
Tradeoffs and opportunity costs
Make the best choice possible
Change in income
Individual’s Economizing Problem
12
DVDs Books
$20
$10
10
60
52
44
36
28
Limits, Alternatives, and
Choices
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Introduction
•
LO1
Economics defined:
•
Briefly: Economic wants exceed productive capacity.
•
A social science concerned with making “optimal choices” under conditions of
“scarcity”.
The Economic Perspective
•
•
LO1
Thinking like an economist
Key features (of economic perspective): •
Scarcity and choice(next slide) •
Rational self-interest(max. satisfaction) •
Marginal analysis
Scarcity and Choice
•
•
•
Resources are scarce
Choices must be made
Opportunity cost
Defn :the value of the best alternative forgone (or the value of the next-highest-valued alternative use of that resource)
•
LO1
There’s no free lunch
Purposeful Behavior
LO1
•
Rational self-interest (max. utility) •
•
•
Individuals and utility
Firms and profit
Desired(preferred) outcomes
Marginal Analysis
•
•
•
•
LO1
Marginal benefit
Marginal cost
Marginal means “extra”
Comparison between marginal benefit and marginal cost
Theories, Principles, and Models
•
The scientific method:
Observe
Formulate a hypothesis
Test the hypothesis
Accept, reject, or modify the hypothesis
Continue to test the hypothesis, if necessary
•
LO2
Economic principles
•
•
Generalizations
•
Graphical expression
All other things held constant (otherthings-equal) assumption
•
Microeconomics and
Macroeconomics
Microeconomics
•
•
Macroeconomics
•
LO3
Decision making by individual units Aggregate component
Positive and Normative Economics
•
Positive economics
•
•
Normative economics
•
LO3
Deals with economic facts
A subjective perspective of the economy
Individual’s Economizing Problem
•
•
•
Limited income
Unlimited wants
A budget line
•
•
•
•
LO4
Attainable and unattainable options
Tradeoffs and opportunity costs
Make the best choice possible
Change in income
Individual’s Economizing Problem
12
DVDs Books
$20
$10
10
60
52
44
36
28