What to produce
– less oil-intensive products
How to produce
– less oil-intensive techniques
For whom to produce
– oil producers have more buying power,
importers have less
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Chapter 1
Economics and the Economy
David Begg, Stanley Fischer and Rudiger Dornbusch, Economics,
6th Edition, McGraw-Hill, 2000
Power Point presentation by Peter Smith
1.1
What is Economics?
ECONOMICS ...
is the study of how society decides:
– What
– For whom
– How
to produce...
1.2
The price of oil
0
5
10
15
20
25
30
35
40
19
65
19
75
19
85
19
95
US
$
pe
r b
ar
re
l
Tripled in 1973-74, and doubled again in 1979-80
… and affected people all over the world.
1.3
An increase in the price of oil
affects
What to produce
– less oil-intensive products
How to produce
– less oil-intensive techniques
For whom to produce
– oil producers have more buying power,
importers have less
1.4
The distribution of world population
and GNP, 1998
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Population GNP
LIC MIC HIC
1.5
Scarcity forces choices to be
made
Opportunity cost
a crucial concept in economic
analysis
the quantity of other goods that
must be sacrificed to obtain
another unit of a good
1.6
The production possibility frontier
For each level of the output of one good,
the production possibility frontier shows
the maximum amount of the other good that
can be produced.
Film output
F
o
o
d
o
u
tp
u
t
Production
possibility
frontier
1.7
The operation of markets
Market
– a shorthand expression for the process by
which
– households’ decisions about consumption
of alternative goods
– firms’ decisions about what and how to
produce
– and workers’ decisions about how much
and for whom to work
are all reconciled by adjustment of
prices
1.8
Resource allocation
Resource allocation is crucial for a
society
and is handled in different ways in
different societies, e.g.:
– Command economy
–Mixed economy
– Free market
1.9
Market orientation
Cuba
China
Hungary
Sweden
UK
USA
Hong Kong
Command
economy
Free
market
economy
1.10
Normative and Positive
Economics
Positive economics deals with
objective explanation
– e.g. if a tax is imposed on a good its
price will tend to rise
Normative economics offers
prescriptions based on value
judgements
– e.g. a tax SHOULD be imposed on
tobacco to discourage smoking
1.11
Micro and Macro
Microeconomics
– offers a detailed treatment of individual
economic decisions about particular
commodities
Macroeconomics
– emphasizes the interactions in the
economy as a whole