LO1: Define economics, microeconomics, and macroeconomics
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Transcript LO1: Define economics, microeconomics, and macroeconomics
Learning Objectives
LO1: Define economics, microeconomics, and macroeconomics.
LO2: Identify John Maynard Keynes, Alfred Marshall, and Adam Smith, and their
influence in economics.
LO3: State and explain the problem of scarcity and its relation to opportunity
cost.
LO4: Explain how a rational decision maker applies the cost–benefit principle.
LO5: State how three pitfalls can undermine rational economic decisions.
LO6: Explain how data are used to evaluate economic theories.
LO7: Distinguish positive economics from welfare economics.
LO8: Define an economic naturalist.
© 2012 McGraw-Hill Ryerson Limited
Ch1 -1
LO1: Define economics,
microeconomics, and macroeconomics
“Economics is the science which studies human behaviour as a
relation- ship between given ends and scarce means which have
alter- native uses.” (British economist Lionel Robbins 1932)
“Economics the study of how people make choices under
conditions of scarcity and the results of those choices for
society.”
Microeconomics the study of individual choices under scarcity
and the implications of these choices for the behaviour of prices
and quantities in individual markets
Macroeconomics the study of the performance of national
economies and the policies that governments use to try to
improve that performance
© 2012 McGraw-Hill Ryerson Limited
LO1: Definition of Economics
Ch1 -2
LO1: Define economics,
microeconomics, and macroeconomics
Microeconomics studies subjects like
Choices of individuals
Choices of Firms
The determinants of prices and quantities in specific markets
Macroeconomics studies subjects like
The performance of national economies
Long run growth and prosperity
Short run booms and busts
Government policies to change performance
© 2012 McGraw-Hill Ryerson Limited
LO1: Definition of Economics
Ch1 -3
LO1: Define economics,
microeconomics, and macroeconomics
One distinguishing feature of economics as a social science is
that economic theories are often expressed as abstract models.
Economic model is a representation of economic reality that
highlights particular variables and the relationships among
them.
Another feature of economics has been the tendency of
economists to assume in their theories that human beings are
rational.
Rational decision maker is someone with clear objectives who
behaves logically to achieve those objectives.
© 2012 McGraw-Hill Ryerson Limited
LO1: Definition of Economics
Ch1 -4
Using a Verbal Description to
Construct a Equation I of II
Equation: a mathematical expression that describes the relationship
between two or more variables
Variable: a quantity that is free to take a range of different values
Dependent Variable: a variable in an equation whose value is
determined by the value taken by another variable in the equation
Independent variable: a variable in an equation whose value
determines the value taken by another variable in the equation
Constant (or parameter): a quantity that is fixed in value
© 2012 McGraw-Hill Ryerson Limited
LO1A.1: Using a Verbal Description to Construct a Graph
Ch1 -5
Using A Verbal Description To
Construct An Equation II of II
My telephone bill is $5.00 per month plus 10 cents for every minute
that I talk
Telephone Bill
= 5.00 + 0.10 * (Minutes Talked)
B = 5.00 + 0.10 T
If you make 32 minutes phone call, monthly bill will be
B = 5.00 + 0.1 (32) = 8.20
Or one can draw a picture of the relationship
© 2012 McGraw-Hill Ryerson Limited
LO1A.1: Using a Verbal Description to Construct a Graph
Ch1 -6
Graphing the Equation of
a Straight Line I of II
B = 5 + 0.1T
Dependent
Variable
12 = 5 + 0.1(70)
8 = 5 + 0.1(30)
6 = 5 + 0.1(10)
Independent
Variable
© 2012 McGraw-Hill Ryerson Limited
LO1A.2: Graphing the Equation of a Straight Line
Ch1 -7
Graphing the Equation of
a Straight Line II of II
The graph of the equation B =5 + 0.10T is the straight line shown;
its vertical intercept is 5, and its slope is 0.10
Slope = Rise/Run
Slope = 2/20 = 0.1
Vertical Intercept
(Constant) is 5
© 2012 McGraw-Hill Ryerson Limited
LO1A.2: Graphing the Equation of a Straight Line
Ch1 -8
Deriving the Equation of a Straight
Line from its Graph
The Equation For the
Billing Plan: B = 4 + 0.20T
Slope = Rise/Run
Slope = 4/20 = 0.2
Vertical Intercept
(Constant) is 4
© 2012 McGraw-Hill Ryerson Limited
LO1A.3: Deriving the Equation of a Straight Line from its Graph
Ch1 - 9
Shifting the Curve – Intercept
Changes
D′ New monthly bill
C′
Original monthly bill
Suppose the fixed fee
increases from $4 to $8 ?
But the per-minute
charge remains the same
D
A′
C
A
Old Telephone Bill was
determined by the equation
B = 4 + 0.20 T
New Bill is determined by
the equation
B = 8 + 0.20 T
© 2012 McGraw-Hill Ryerson Limited
LO1A.4: Changes in the Vertical Intercept
Ch1 - 10
Shifting the Curve – Slope Changes
C′
Rise = 8
A′
The slope of a graph indicates
how much of a “rise” one can
expect, for a given “run”
Old Telephone Bill was
determined by the equation
New monthly bill
Original monthly bill
Run = 20
C
B = 8 + 0.20 T
A
New Telephone Bill is
determined by the equation
B = 8 + 0.40 T
© 2012 McGraw-Hill Ryerson Limited
LO1A.5: Changes in the Slope
Ch1-11
Constructing Equations and Graphs
from Tables
Point A
Point C
Slope = Rise/Run
Slope = 1/20 = 0.05
Vertical
Intercept
(Constant) is 10
The Equation For the
Billing Plan: B = 10+ 0.05T
© 2012 McGraw-Hill Ryerson Limited
LO1A.6: Constructing Equations and Graphs from Tables
Ch1 -12