Economist Ppt Mba

8/2/2019 Economist Ppt Mba

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Economist


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Thinking Like an Economist

Every field of study has its own terminology

Mathematics integrals axioms vector spaces

Psychology ego id cognitive dissonance

Law promissory estoppel torts venues

Economics

supply opportunity cost elasticity consumersurplus demand comparative advantagedeadweight loss


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Thinking Like an Economist

Economics trains you to. . . .

Think in terms of alternatives.

Evaluate the cost of individual and social choices.

Examine and understand how certain events andissues are related.


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THE ECONOMIST AS ASCIENTIST

The economic way of thinking . . .

Involves thinking analytically and objectively.

Makes use of the scientific method.


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The Scientific Method: Observation, Theory, andMore Observation

Uses abstract models to help explain how acomplex, real world operates.

Develops theories, collects, and analyzes datato evaluate the theories.


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The Role of Assumptions

Economists make assumptions in order tomake the world easier to understand.

The art in scientific thinking is deciding which

assumptions to make.

Economists use different assumptions toanswer different questions.


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Economic Models

Economists use models to simplify reality inorder to improve our understanding of theworld

Two of the most basic economic modelsinclude:

The Circular Flow Diagram

The Production Possibilities Frontier


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Our First Model: The Circular-Flow Diagram

The circular-flow diagramis a visual model ofthe economy that shows how dollars flowthrough markets among households and firms.


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Figure 1 The Circular Flow

Copyright 2004 South-Western

SpendingGoods andservicesbought

RevenueGoodsand servicessold

Labor, land,and capitalIncome

= Flow of inputs

and outputs= Flow of dollars

Factors ofproduction

Wages, rent,and profit

FIRMSProduce and sellgoods and services

Hire and use factorsof production

Buy and consumegoods and services

Own and sell factorsof production

HOUSEHOLDS

Households sellFirms buy

MARKETSFOR

FACTORS OF PRODUCTION

Firms sellHouseholds buy

MARKETSFOR

GOODS AND SERVICES


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Firms

Produce and sell goods and services

Hire and use factors of production

Households

Buy and consume goods and services

Own and sell factors of production


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Markets for Goods and Services

Firms sell

Households buy

Markets for Factors of Production

Households sell

Firms buy


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Factors of Production

Inputs used to produce goods and services

Land, labor, and capital


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Our Second Model: The ProductionPossibilities Frontier

The production possibilities frontieris a graphthat shows the combinations of output that theeconomy can possibly produce given the

available factors of production and theavailable production technology.


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Figure 2 The Production Possibilities Frontier

Copyright2003 Southwestern/Thomson Learning

Productionpossibilitiesfrontier

A

B

C

Quantity of

Cars Produced

2,200

600

1,000

300

0

700

2,000

3,000

1,000

Quantity ofComputers

Produced

D


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Our Second Model: The ProductionPossibilities Frontier

Concepts Illustrated by the ProductionPossibilities Frontier

Efficiency

TradeoffsOpportunity Cost

Economic Growth


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Figure 3 A Shift in the Production Possibilities Frontier


E

Quantity of

Cars Produced

2,000

700

2,100

750

0

4,000

3,000

1,000

Quantity ofComputers

Produced

A


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Microeconomics and Macroeconomics

Microeconomicsfocuses on the individual partsof the economy.

How households and firms make decisions and

how they interact in specific markets Macroeconomicslooks at the economy as a

whole.

Economy-wide phenomena, including inflation,unemployment, and economic growth


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THE ECONOMIST AS POLICYADVISOR

When economists are trying to explain theworld, they are scientists.

When economists are trying to change the

world, they are policy advisor.


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POSITIVE VERSUS NORMATIVEANALYSIS

Positive statementsare statements thatattempt to describe the world as it is.

Called descriptive analysis

Normative statementsare statements abouthow the world should be.

Called prescriptive analysis


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POSITIVE VERSUSNORMATIVE ANALYSIS

Positive or Normative Statements?

An increase in the minimum wage will cause adecrease in employment among the least-skilled.

POSITIVE

Higher federal budget deficits will cause interestrates to increase.

POSITIVE

?

?

?


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POSITIVE VERSUSNORMATIVE ANALYSIS

Positive or Normative Statements?

The income gains from a higher minimum wageare worth more than any slight reductions in

employment.NORMATIVE

State governments should be allowed to collect

from tobacco companies the costs of treatingsmoking-related illnesses among the poor.

NORMATIVE

?

?

?


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Economists in Washington

. . . serve as advisers in the policymakingprocess of the three branches of government:

Legislative

Executive Judicial


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Economists in Washington

Some government agencies that collecteconomic data and make economic policy:

Department of Commerce

http://www.commerce.govBureau of Labor Statistics

http://www.bls.gov

Congressional Budget Office

http://www.cbo.gov

Federal Reserve Board

http://www.federalreserve.gov

CO O S S


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WHY ECONOMISTSDISAGREE

They may disagree about the validity ofalternative positive theories about how theworld works.

They may have different values and, therefore,different normative views about what policyshould try to accomplish.

Table 2 Ten Propositions about Which Most


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Table 2 Ten Propositions about Which MostEconomists Agree



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Summary

Economists try to address their subjects with ascientists objectivity.

They make appropriate assumptions and build

simplified models in order to understand the worldaround them.

Two simple economic models are the circular-flowdiagram and the production possibilities frontier.


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Summary

Economics is divided into two subfields:

Microeconomists study decisionmaking byhouseholds and firms in the marketplace.

Macroeconomists study the forces and trends thataffect the economy as a whole


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Summary

A positive statement is an assertion about howthe world is.

A normative statement is an assertion about

how the world ought to be. When economists make normative statements,

they are acting more as policy advisors than

scientists.


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Summary

Economists who advise policymakers offerconflicting advice either because of differencesin scientific judgments or because of

differences in values. At other times, economists are united in the

advice they offer, but policymakers maychoose to ignore it.

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Economist Ppt Mba