Introduction: Economic Issues

1. Introduction: Economic Issues

2. The Economic Problem • Economic problems • production and consumption • scarcity: the central economic problem • Macroeconomic issues • growth • unemployment • inflation • balance of trade deficits • cyclical fluctuations

3. The Economic Problem • Microeconomic issues • choices: • what • how • for whom • the concept of opportunity cost • rational decision making • weighing up marginal costs and marginal benefits • the social implications of choice

4. The Economic Problem • The production possibility curve • what the curve shows

5. Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m A production possibility curve Units of food (millions) Units of clothing (millions)

6. A production possibility curve a Units of food Units of clothing (millions) (millions) a 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

7. A production possibility curve b Units of food Units of clothing (millions) (millions) 8m 0.0 b 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

8. A production possibility curve c Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m c 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

9. A production possibility curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

10. A production possibility curve Units of food (millions) Units of clothing (millions)

11. w A production possibility curve x Units of food (millions) Units of clothing (millions)

12. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve:

13. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost

14. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost

15. 1 1 2 1 Increasing opportunity costs x y Units of food (millions) z Units of clothing (millions)

16. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost • macroeconomics and the p.p. curve:

17. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost • macroeconomics and the p.p. curve: • production within the curve

18. Making a fuller use of resources x Production inside the production possibility curve y v Food O Clothing

19. The Economic Problem • The production possibility curve • what the curve shows • microeconomics and the p.p. curve: • choices and opportunity cost • increasing opportunity cost • macroeconomics and the p.p. curve: • production within the curve • shifts in the curve

20. Growth in potential output Now Food O Clothing

21. Growth in potential output 5 years’ time Food Now O Clothing

22. Growth in potential and actual output Food O Clothing

23. Growth in potential and actual output y x Food O Clothing

24. The Economic Problem • The circular flow of income • firms and households

25. The circular flow of goods and incomes

26. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services

27. The circular flow of goods and incomes

28. The circular flow of goods and incomes Goods and services

29. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure

30. The circular flow of goods and incomes Goods and services

31. The circular flow of goods and incomes Goods and services £ Consumer expenditure

32. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure • factor markets

33. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure • factor markets • real flows: services of labour and other factors

34. The circular flow of goods and incomes Goods and services £ Consumer expenditure

35. The circular flow of goods and incomes Goods and services £ Consumer expenditure Services of factors of production (labour, etc)

36. The Economic Problem • The circular flow of income • firms and households • goods markets • real flows: goods and services • money flows: consumer expenditure • factor markets • real flows: services of labour and other factors • money flows: wages and other incomes

37. The circular flow of goods and incomes Goods and services £ Consumer expenditure Services of factors of production (labour, etc)

38. The circular flow of goods and incomes Goods and services £ Consumer expenditure Wages, rent dividends, etc. £ Services of factors of production (labour, etc)

39. The Economic Problem • The circular flow of income (cont.) • macroeconomic issues • the size of total flows • microeconomic issues • individual markets • choices within goods and factor markets