課件文稿教案1-basic economic ideas

1、1. Basic economic IdeasMain TopicsThe Economic Problem-Scarcity, choice and resource allocation.Factors of ProductionSpecialisation and ExchangeMoney-Functions and CharacteristicsOpportunity CostProduction Possibility Curve (Frontier)Different Allocative MechanismsThe Economic Problem-Scarcity, choi

2、ce and resource allocationThe economic problem is Scarce Resources in relation to Unlimited Wants.Unlimited WantsScarce Resources Land, Labour, Capital, etc.Resource UseChoicesLimited ResourcesThere are only a finite (or limited) number of workers, machines, acres of land and reserves of oil and oth

3、er natural resources on the earth. Because most of our resources are finite, we cannot produce an unlimited number of different goods and servicesBy producing more for an ever-increasing population we are in real danger of destroying the natural resources of the planet. This has important consequenc

4、es for the long-term sustainability of economies throughout the world and potentially huge implications for our living standards and the quality of life.Unlimited WantsHuman beings want better food; housing; transport, education and health services. They demand the latest digital technology, more me

5、als out at restaurants, more frequent overseas travel, more leisure time, better cars, cheaper food and a wider range of cosmetic health care treatments.Economic resources are limited, but human needs and wants are infinite. Indeed the development of society can be described as the uncovering of new

6、 wants and needs - which producers attempt to supply by using the available factors of production.Objectives of Consumers & ProducersConsumersTo simplify analysis, economics assumes that consumers are rational decision makers and act in a way that maximize their satisfactionIt means that they make c

7、hoices about what to consume based on the aim of maximising their own welfare. They have a limited e (i.e. a limited budget) and they seek to allocate their funds in a way that improves their standard of living.Of course in reality consumers rarely behave in a perfectly informed and rational wayObje

8、ctives of Consumers & ProducersProducersTo simplify analysis, economics assumes that producers are rational decision makers and act in a way that maximize their welfareIt means that they use limited resources to produce goods or services that yield the highest possible level of profitsIn reality man

9、y businesses pursue objectives different from pure profit maximisationScarcity & choicesBecause of scarcity, choices have to be made on a daily basis by all consumers, firms and governmentsMaking a choice made normally involves a trade-off - in simple terms, choosing more of one thing means giving u

10、p something else in exchange. Because wants are unlimited but resources are finite, choice is an unavoidable issue in economics.The Economic Problem-Scarcity, choice and resource allocationWhat to ProduceWhat goods and services should an economy produce? What Quantities? should the emphasis be on ag

11、riculture, manufacturing or services, should it be on sport and leisure or housing?How to ProduceHow should goods and services be produced? labour intensive, land intensive, capital intensive? Efficiency?For Whom to ProduceWho should get the goods and services produced? even distribution? more for t

12、he rich? for those who work hard?Factors of Production (Input)-LandLand includes all of the natural physical resources, eg: the ability to exploit fertile farm land, the benefits from a temperate climate or the ability to harness wind and solar power and other forms of renewable energy. Some nations

13、 are richly endowed with natural resources and then specialise in the extraction and production of these resources. Other countries have a smaller natural factor endowment & may be more reliant on importing these resources. Factors of Production (Input)-LabourLabour is the human input into the produ

14、ction process.An increase in the size and the quality of the labour force is vital if a country wants to achieve economic growth.The issue of the migration of labourcan migrant workers help to solve some of the labour shortages that many countries experience? And what of the long-term effects on the

15、 countries who suffer a drain or loss of workers through migration?Factors of Production (Input)-CapitalCapitalin economics the term capital means investment in capital goods that can then be used to produce other consumer goods and services in the futureFixed capital includes machinery, plant and e

16、quipment, new technology, factories and other buildings.Working capital refers to stocks of finished and semi-finished goods (or components) that will be either consumed in the near future or will be made into finished consumer goodsFactors of Production (Input)-CapitalThe global oil and gas industr

17、y uses a huge amount of capital equipment to get the product crude oil to the refineries and processing stages.Factors of Production (Input)-EnterpriseEnterpise-EntrepreneurAn entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. to make a profit). Entrepr

18、eneurs will usually invest their own financial capital in a business (for example their savings) and take on the risks associated with a business investment. The reward to this risk-taking is the profit made from running the business. Many economists agree that entrepreneurs are in fact a specialise

19、d part of the factor input labour.Factors of Production (Input)FactorDescriptionRewardLand all natural resources (gifts of nature) including fields, mineral wealth, and fishing stocks The reward for landlords for allowing firms to use their property is rentLabourThe physical and mental work of peopl

20、e whether by hand, by brain, skilled or unskilledThe reward for workers giving up time to help create products is wages or salariesCapitalMan made goods used to produce more goods including factories (plant), machines and roads. The reward for creditors lending money to firms to invest in buildings

21、and capital equipment is interestEnterprise An entrepreneur risks financial capital and organises land labour & capital to produce output in the hope of profitThe reward for individuals risking funds and offering products for sale is profit. Unsuccessful firms make losses.Specialisation and exchange

22、Specialisation refers to a situation where individuals and firms, regions and nations concentrate upon producing some goods & services rather than others. Specialisation allows individuals to concentrate upon what they are best at thus more goods & services will be produced. However, no one is self-

23、sufficient. It es necessary to exchange goods & services. Specialisation and exchange will benefit regional and national economy, resulting in massive expansion in world living standard. In some cases, however, it is also dangerous. Potential benefits from specialisation By concentrating on what peo

24、ple and businesses do best rather than relying on self sufficiency:Higher output: Total output of goods and services is raised and quality can be improved. A higher output at lower costs means more wants and needs might be satisfied with a given amount of scarce resources.Variety; Consumers have imp

25、roved access to a greater variety of higher quality products i.e. they have more and better choice both from their own economy and from the production of other countriesPotential benefits from specialisationA bigger market: specialisation and international trade increase the size of the market offer

26、ing opportunities for economies of scale (a fall in long run costs per unit of output)Competition and lower prices: Increased competition for domestic producers acts as an incentive to minimise costs and innovate to remain competitive. Competition helps to keep prices down and maintains low inflatio

27、nSpecialisation and exchangeThe division of labourConcentration of large numbers of workers within very large production units allowed the process of production to be broken down into a series of tasks.Although the division of labour raised output, it often created dissatisfaction in the work force.

28、 This leads to de-humanising progress of production techniques.Specialisation and exchangeThe division of labour- The limitationThe greatest downside is that the division of labour may eventually reduce efficiency and increase unit costs because unrewarding, repetitive work lowers worker motivation

29、and productivity. Workers begin to take less pride in their work and quality suffers, the result may be a problem of diseconomies of scale. The division of labour also runs the risk that if one machine breaks down then the entire factory stops. Some workers receive a narrow training and may not be a

30、ble to find alternative jobs if they find themselves out of work (they may suffer structural unemployment). Another disadvantage is that mass-produced standardized goods tend to lack variety.Money-Functions and CharacteristicsBarterThe direct exchange of one good or service for anotherOnly under the

31、 situation of double coincidence of wantsFrom the economists standpoint, money has three necessary functionsA medium of exchangeA unit of accountA store of value These three functions are very important and necessary for the smooth working of all economies. If any of these functions break down and c

32、an not be met, people lose confidence in money. Economic collapse is the only e.Opportunity CostDefinition the cost expressed in terms of the next best alternative sacrificedThere is no such thing as a free lunchOpportunity cost measures the cost of any choice in terms of the next best alternative f

33、oregone.Helps us view the true cost of decision makingImplies valuing different choices, for example:Work-leisure choicesGovernment spending prioritiesInvesting today for consumption tomorrowMaking use of scarce farming landProduction Possibility CurvesAlso called Production Possibility Frontier, Pr

34、oduction Transformation Curvea curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst using all of the available factor resources efficientlyA PPC(PPF) on a diagram is usually a concave to the origin. as the extra output resulting from allocati

35、ng more resources to one particular good may fall. The Shape of PPC (PPF)As we move down the PPF, as more resources are allocated towards Good Y, the extra output gets smaller, more of Good X has to be given up in order to produce the extra output of Good Y. Known as the principle of diminishing ret

36、urnsResources are not perfectly mobile between different uses/difference industriesReallocating Resources may require re-training, the time and cost of moving resources to their new use The Shape of PPC (PPF)Production Possibility CurvesAny point inside the curve suggests resources are not being uti

37、lised efficientlyAny point outside the curve not attainable with the current level of resourcesThe curve draws the boundary between what can and cannot be achieved.Useful in illustrating the real cost to society of unemployed resources.Useful to demonstrate economic growth and opportunity costProduc

38、tion Possibility CurvesProduction Possibility CurvesThe PPF does not always have to be drawn as a curve. If the opportunity cost for producing two products is constant, then we draw the PPF as a straight line. The gradient of that line is a way of measuring the opportunity cost between two goods.Pro

39、duction Possibility CurvesY (Capital Goods)X(Consumer Goods)YoXoABY1X1Assume a country can produce two types of goods with its resources capital goods and consumer goodsIf it devotes all resources to capital goods it could produce a maximum of Ym.If it devotes all its resources to consumer goods it

40、could produce a maximum of XmYmXmIf the country is at point A on the PPF It can produce the combination of Yo capital goods and Xo consumer goodsIf 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 o

41、pportunity cost of producing an extra Xo X1 consumer goods is Yo Y1 capital goods.Shifts in Production Possibility CurvesPoint D is unattainable at the moment because it lies beyond the PPC. A country would require an increase in factor resources, or an increase in the efficiency (or productivity) o

42、f factor resources or an improvement in technology to reach this combination of Good X and Good Y. If we achieve this then output combination D may e attainable. Producing more of both goods would represent an improvement in our economic welfare providing that the products are giving consumers a pos

43、itive satisfaction and therefore an improvement in what is called allocative efficiencyShifts in Production Possibility CurvesY(Capital Goods)X(Consumer Goods)YoXoA.BDY1X1Production inside the PPF e.g. point B means the country is not using all its resources It can only produce at points outside the

44、 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.Shifts in Production Possibility CurvesShifts in Production Possibility CurvesY(Agricultural Products)X(Manufactured ProductsYoXo=X1ADY1When the a

45、bility to produce agricultural products gets improved, for example, a technological breakthrough, the curve may shift upwardShifts in Production Possibility CurvesY(Agricultural Products)X(Manufactured ProductsYo=Y1XoADWhen the ability to produce manufactured products gets improved, for example, a t

46、echnological breakthrough, the curve may shift rightwardX1Shifts in Production Possibility CurvesY(Agricultural Products)X(Manufactured ProductsYoXoADPPC could also decline when in some way the resources available to the economy have declined:Some natural resources e exhausted.Working population is

47、fallingTechnology available to us has changed.Impact of controls on global emissions, X1Y1Application of PPC (PPF)Jam today or more jam tomorrow?In the process of production, resources are used up and need to be replaced if production possibilities are to be maintained.Capital Consumption (Depreciat

48、ion) -describe the using up of capital goods during the process of production.Investment-The creation of capital goods in the process of production-Any production not for current consumption.Net Investment=Gross Investment minus capital consumptionApplication of PPC (PPF)A choice has to made between

49、 producing consumer goods and services and producing capital goods through the process of investment.The more consumer goods and service produced, the higher the standard of living in the current time period but the standard of living might fall in the future if there is failure to produce enough ca

50、pital goods to replace those worn out in the process of production.In addition, the quality of an economys capital goods will not improved and the full benefits of new technology will not be enjoyed if there is a failure to devote sufficent resources to investment. Choice: Consumer Goods vs Capital

51、GoodsY(Consumer Goods)X(Capital GoodsCapital ConsumptionrpWe assume the quantity of capital goods which are wearing out in each time period is shown at a.If we fail to produce the quantity a, then our capital stock will decline. Our production possibilities will dimish and the curve will shift to th

52、e left.aqHard Choices for Developing EconomiesY(Consumer Goods)X(Capital GoodsCapital ConsumptionbAssignment:0a represents the capital consumption in a developing economy0b representing the consumer goods require for the subsistence of the population.Explain the choices facing decision makers in the

53、 developing economy . Discuss the difficulties they face and suggest any solutions to their problems.aSubsistenceDifferent Allocative MechanismsWho makes choices while facing the problem of scarcity are determined by economic system of a particular country.Economic System is a term used to describe the means or allocative mechanism by which its people, busin