西方经济学-英文版课件

西方经济学ECONOMICS西方经济学ECONOMICS1ECONOMICS参考书：PaulA.Samuelson,WilliamD.NordhausEconomics,18EditionTheMcGraw-HillCompanies,Inc.2005中国人民邮电出版社ECONOMICS参考书：2ECONOMICSUnit1:NatureandscopeofeconomicsUnit2:TheoryofdemandUnit3:TheoryofsupplyUnit4:PricedeterminationUnit5:ElasticityofdemandUnit6:PriceelasticityofsupplyUnit7:EconomiesoflargescaleproductionandexistenceofsmallfirmsUnit8:ProductioncostUnit9:PerfectCompetitionUnit10:MonopolyUnit11:MonopolisticcompetitionECONOMICSUnit1:Natureands3ECONOMICSUnit12:OligopolyUnit13:Consumerpriceindex-CPIUnit14:Centralbank-monetarypolicyUnit15:InflationUnit16:UnemploymentUnit17:Roleofgovernment_fiscalpolicyUnit18:NationalincomeaccountingUnit19:Nationalincomeapplication-standardoflivingUnit20:KeynestheoryofincomeandemploymentUnit21:InternationaltradeUnit22:FreetradeandprotectionECONOMICSUnit12:Oligopoly4Natureandscopeofeconomics1.1WhatisEconomics?1.2VariousDefinitionsofEconomics1.3BranchesofEconomicsMicroeconomicsMacroeconomics1.4TheBasicEconomicProblems1.5ConceptofOpportunityCost1.6ProductionPossibilityCurve(PPC)1.7ReviewQuestionsNatureandscopeofeconomics151.1WhatisEconomics?Everywherehumanbeingsarefoundtomakeeffortsandearnmoneyandthenspendthismoneytosatisfytheirwants.Therefore,theactivitiesconcerningtheearningandspendingofwealtharestudiedunderEconomics.(Eco.)

1.1WhatisEconomics?Everywh61.2VariousDefinitionsofEconomicsAdamSmithEconomicsisastudyof"anenquiryintothenatureandcausesofwealthofnations."J.S.MillsEconomicsisastudyof"thepracticalscienceoftheproductionanddistributionofwealth."L.RobbinsEconomicsisa"sciencewhichstudieshumanbehaviourasarelationshipbetweenendandscarcemeanswhichhavealternativeuses."1.2VariousDefinitionsofEc71.2VariousDefinitionsofEconomicsRichardLipsey:Moderneco.concerns:-a)Theallocationofasociety'sresourcesamongalternativeusesandthedistributionofthesociety'soutputamongindividualsandgroup.b)Thewaysinwhichproductionanddistributionchangesovertime.c)Theefficientandinefficienciesofeconomicsystems.1.2VariousDefinitionsofEc81.2VariousDefinitionsofEconomicsGeneralDefinitionEconomicsisastudyofhowpeopleallocatetheirlimitedresourcessuchasland,labourandcapitaltoprovidefortheirunlimitedwants.1.2VariousDefinitionsofEc9MicroeconomicsMicroeconomicsstudiestheeconomicdecisionmakingoffirmsandindividualsinamarketsetting.MicroeconomicsMicroeconomicss10MicroeconomicsTheissuesthatarestudiedunderMicroeconomicanalysisare:a)Howconsumersbehave.b)Howbusinessfirmsmakechoices.c)Howpricesaredeterminedinthemarkets.d)Howtaxesandpricecontrolsaffectconsumersandproducers.e)Howthestructureofmarketsaffecteconomicperformance.f)Howwages,interestrates,rentandprofitsaredetermined.g)Howincomeisdistributedamongfamilies.MicroeconomicsTheissuesthat11MacroeconomicsMacroeconomicsisastudyofeconomyasawholeanditconcernstherelationshipamongaggregate(total)measures.MacroeconomicsMacroeconomicsi12MacroeconomicsTheissuesthatarestudiedundermacroeconomicanalysisare:a)NationalIncome.b)Nation'smoneysupplyandmoneydemand.c)Thevalueofmoney.d)Inflationanditsdeterminants.e)Macroeconomicobjectivessuchaspricestability,fullemployment,BalanceofPaymentsandEconomicgrowth.f)Governmentpolicies(e.g.MonetaryandFiscalPolicies).g)PublicFinance(e.g.Governmentrevenueandexpenditure).MacroeconomicsTheissuesthat131.4TheBasicEconomicProblemsInaneconomy,peoplehaveunlimiteddesireforgoodsandservices(g&s),i.e.unlimitedwants,buttheresourcesintheworldarelimitedandsowecannotsatisfyallourwantsandareforcedtochooseastowhichgoodstoproduce.Therefore,scarcityandchoiceor"limitedresourcesandunlimitedwants"sumupthebasiceconomicproblem.Choiceisdeterminedby:i.Scaleofpreferenceii.Opportunitycost1.4TheBasicEconomicProble141.4TheBasicEconomicProblemsWecansummarisethisideaintothefollowingfigure:

1.4TheBasicEconomicProble151.4TheBasicEconomicProblemsAswearefacedwiththeproblemofscarcity,thereare3importanteconomicdecisionstobeconsidered.i)Whatgoods&servicestobeproducedandinwhatquantityi.e.howmuchtobeproduced?Thisconcernswiththeallocationofscarceresourcesamongalternativeuses.ii)Howorbywhatmethodgoods&servicesshouldbeproduced?Thisconcernswithchoosingthemostefficientmethodofproduction.iii)Forwhomaregoods&servicestobeproduced,i.e.whoaretoenjoythegoods&servicesproduced?Thisconcernswiththedistributionofsuchgoods&services.1.4TheBasicEconomicProble161.5ConceptofOpportunityCost

Opportunitycostofsatisfyingawantisthenextbestalternativethathastobeforgone,(i.e.thecostofgivingupsomethinginordertoobtainsomethingelse.)1.5ConceptofOpportunityCo171.5ConceptofOpportunityCost

1.5ConceptofOpportunityCo181.5ConceptofOpportunityCost

1.5ConceptofOpportunityCo191.5ConceptofOpportunityCost

E.g.Apersonhas$5andhecanspendonchocolateorchewinggumoracombinationofboth.Priceofabarofchocolate=$0.50Priceofabarofchewinggum=$0.20Chocolate

Chewinggum100856104152200251.5ConceptofOpportunityCo201.5ConceptofOpportunityCost

Thereare6attainablecombinationsavailabletohimusingallhismoney.Assumingthatheisconsuming6barsofchocolateand10barsofchewinggum,theopportunitycostofthe8thbarofchocolateiswhathemustgiveupinordertogetthat8thbar,whichinthiscaseis5barsofchewinggum.(10-5)Thelineontheabovediagramshowsaconstantopportunitycostofconsuming2additionalbarsofchocolateis5barsofchewinggum.Opportunitycostisrepresentedbytheslopeofthatline.1.5ConceptofOpportunityCo211.6ProductionPossibilityCurve(PPC)ProductionPossibilitycurveisdefinedasthecurvethatshowsthegreatestpossiblequantitiesofgoodsthatcanbeproducedwiththeavailableresourcesatagivenleveloftechnology.Example:Combination

Consumptiongoods

InvestmentgoodsA6500B6401.0C5103.6D4104.6E1005.2F05.31.6ProductionPossibilityCu221.6ProductionPossibilityCurve(PPC)AllcombinationsonorinsidethePPCareattainablewhilethosecombinationsoutsidethePPCareunattainablepresently,giventheresourcesandtheleveloftechnology.However,combinationsofgoodsinsidethePPCimplythatresourcesarenotfullyutilisedoremployed.1.6ProductionPossibilityCu231.7ReviewQuestions1.Theproblemofscarcityrequirescertaineconomicdecisionstobeconsidered.Whatarethesedecisions?2.Defineandexplain,withexamples,thefollowingeconomicconcepts:a.OpportunityCostb.ProductionPossibilityCurve1.7ReviewQuestions1.Thepr24Theoryofdemand2.1Definition2.2LawofDemand2.3IndividualDemandScheduleandCurve2.4MarketDemandScheduleandCurve2.5AChangeinQuantityDemandedandaChangeinDemand2.6FactorswhichCausetheDemandCurvetoShift2.7ReviewQuestionsTheoryofdemand2.1Definitio252.1DefinitionDemandreferstotherangeofquantitiesofacommodity,whichaconsumeriswillingandabletobuyatdifferentpricelevelsatagiventime.2.1DefinitionDemandreferst262.2LawofDemandIfallotherthingsremainconstant(ceterisparibus),thehighertheprice,thelowerwillbethequantitydemandedandviceversa.2.2LawofDemandIfallother272.3IndividualDemandScheduleandCurveThetablebelowisthedemandschedule,whichliststhequantityofacommoditythatwouldbedemandedatvariouspricelevelswithagivenincome.Itshowstherelationshipbetweenquantitydemandedandprice.2.3IndividualDemandSchedule282.3IndividualDemandScheduleandCurveThedemandcurveisagraphicalrepresentationofthedatainthedemandschedule.Itslopesdownwardsfromlefttorightindicatingthatthequantitydemandedincreasesasthepricefalls.2.3IndividualDemandSchedule292.4MarketDemandScheduleandCurveMarketdemandisthetotaldemandofalltheconsumersforaparticulargood.Itcanalsobederivedbythelateralsummationoftheconsumers'demandcurves.2.4MarketDemandSchedulean302.4MarketDemandScheduleandCurve2.4MarketDemandSchedulean312.5AChangeinQuantityDemandedandaChangeinDemandAchangeinquantitydemandedisamovementalongthedemandcurve.Thisisbroughtaboutbychangesinthepriceofthegood.Achangeindemandistheshiftofthedemandcurve.Thus,anincreaseordecreaseindemandmeansthatgreaterorsmallerquantityispurchasedatthesameprice.Thisshiftofthedemandcurveresultsfromachangeinanyofthedeterminantsofdemand.2.5AChangeinQuantityDema322.5AChangeinQuantityDemandedandaChangeinDemand2.5AChangeinQuantityDema332.6FactorswhichCausetheDemandCurvetoShifta)TastesandPreferencesConsumers’tastesandpreferenceschangeovertime.Theymaybeinfluencedbyfactorslikeage,educationandadvertisements.b)IncomeAnincrease(ordecrease)inincomewouldusuallyleadtomore(orless)ofagoodbeingbought.c)FutureExpectationsIfconsumersexpectpricestoriseinthefuture,theywouldbuymoreofthegoodsinordertoavoidpayingmoreinfuture.However,iftheyexpectpricestofall,theywouldchecktheirconsumption.2.6FactorswhichCausetheD342.6FactorswhichCausetheDemandCurvetoShiftd)ChangesinPopulationChangesinthesizeandstructureofpopulationwouldaffectdemand.Generally,anincreaseinpopulationwouldleadtoanincreaseindemand.e)PricesofOtherGoodsComplements:coffeeandsugar.Ifpriceofcoffeefalls,morecoffeewouldbebought.Thiswouldleadtoanincreaseindemandforsugar.Substitutes:butterandmargarine.Ifthepriceofmargarinefalls,consumerswouldshifttheirdemandfrombuttertomargarine,whichischeapernow.f)GovernmentPoliciesIfthegovernmentintroducesnewtaxesorincreasesexistingtaxrate,thetaxpayers'incomeswouldfall,thusreducingtheirdemandforgoods.2.6FactorswhichCausetheD352.7ReviewQuestions1.Distinguish'changeinquantitydemanded'from'changeindemand'.2.Whatfactorswillcausethedemandcurvetoshiftright?2.7ReviewQuestions1.Distin36Theoryofsupply3.1Definition3.2LawofSupplyDefinition3.3IndividualSupplyScheduleandCurve3.4MarketSupplyCurve3.5DistinctionbetweenMovementalongSupplyCurveandShiftoftheSupplyCurve3.6FactorswhichcausetheSupplyCurvetoShift3.7ReviewQuestionsTheoryofsupply3.1Definition373.1DefinitionSupplyreferstothequantityofacommoditythatisofferedforsaleatagivenpriceandataparticularpointoftime.3.1DefinitionSupplyrefersto383.2LawofSupplyDefinitionIfallotherthingsremainconstant(ceterisparibus),thehighertheprice,thegreaterwillbethequantitysuppliedandviceversa.3.2LawofSupplyDefinitionIf393.3IndividualSupplyScheduleandCurveSupplyscheduleshowstherelationshipbetweenquantitysuppliedofagoodandthedifferentpricelevelofthatgood.Supplycurveisagraphicalrepresentationofthesupplyschedule.3.3IndividualSupplySchedule403.3IndividualSupplyScheduleandCurve3.3IndividualSupplySchedule413.4MarketSupplyCurveMarketSupplyreferstothetotalsupplyofaparticularcommoditybyalltheproducersatapointoftime.Itisaddinghorizontally,alltheindividualsupplycurvesateachdifferentpricelevel.3.4MarketSupplyCurveMarket423.5DistinctionbetweenMovementalongSupplyCurveandShiftoftheSupplyCurvea)MovementAlongSupplyCurveItisalsoknownasachangeinquantitysuppliedasaresultofachangeinthepriceofthecommodity,allotherfactorsremainconstant.3.5DistinctionbetweenMoveme433.5DistinctionbetweenMovementalongSupplyCurveandShiftoftheSupplyCurveb)ShiftoftheSupplyCurveItisalsoknownasachangeinsupplyasaresultofachangeintheconditionsofsupplywhilethepriceofthatcommodityremainunchanged.3.5DistinctionbetweenMoveme443.6FactorswhichcausetheSupplyCurvetoShifta)NaturalCalamitiesAnynaturalcalamitiessuchasearthquakes,flood,droughtetc.willreducesupplyandhencewillshiftsupplycurvetotheleft.b)CostofProductionAnychangesinthecostofproductionasaresultofanychangesinthepriceoffactorinputwillshiftthesupplycurve.c)StateofTechnologyAdvancementintechnologywillcertainlyreducethecostofproductionandhencewillincreaseoutputbyshiftingsupplytotheright.d)GovernmentPoliciesIntroductionofindirecttaxesorsubsidieswillaffectthecostofproductionandhencewillshiftthesupplycurve.e)EconomicandPoliticalStabilityAneconomicrecessionorpoliticalunrestwillresultinsuppliersbeinguncertainaboutthemarketdemandandtheirbusinessconditions.Therefore,theirsupplymaycontract.3.6FactorswhichcausetheSu453.7ReviewQuestions1.Distinguish'changeinquantitysupplied'from'changeinsupply.2.Whatfactorswillcausethesupplycurvetoshiftleft?3.7ReviewQuestions1.Disting46Pricedetermination4.1Definition4.2EffectontheEquilibriumPriceandQuantity4.2.1WhenConditionsofDemandChanged(WithSupplyUnchanged)4.2.2WhenConditionsofSupplyChanged(WithDemandUnchanged)4.2.3WhenBothConditionsofDemandandSupplyChanged4.2.4WhenGovernmentImposesanIndirectTax4.2.5WhenGovernmentProvidesSubsidytoProducers4.3PriceControl4.3.1PriceCeiling4.3.2PriceFloor4.4ReviewQuestionsPricedetermination4.1Definit474.1DefinitionEquilibriumpriceariseswhenallthegoodsinthemarketwillbeclearedatthatprice.Equilibriumquantityariseswhenwhatisbeingbroughttothemarketbythesellerisbeingboughtbytheconsumersattheequilibriumprice.4.1DefinitionEquilibriumpric484.1Definition4.1Definition494.2.1WhenConditionsofDemandChanged(WithSupplyUnchanged)Ifthereisachangeintheconditionofdemandthatcausethedemandcurvetoshifttotheleft,therewillbeanewequilibriumpriceandquantityasshownindiagram(i)below.4.2.1WhenConditionsofDeman504.2.2WhenConditionsofSupplyChanged

(WithDemandUnchanged)Ifthereisachangeintheconditionofsupplythatcauseittoshifttotheleft,thiswillresultinanewequilibriumpriceandquantityasshownindiagram(ii)below.4.2.2WhenConditionsofSuppl514.2.3WhenBothConditionsofDemand

andSupplyChangedIftherearechangesinboththeconditionsofdemandandsupply,thentheequilibriumpriceandquantitycanonlybedeterminedprovidedweknow:Thedirectionsoftheshift(leftorright)-Themagnitude(distance)oftheshift-Theelasticity(slope)ofbothdemandandsupplycurves4.2.3WhenBothConditionsof524.2.4WhenGovernmentImposesanIndirectTaxTheimpositionofanindirecttaxwillreducetheamountthatfirmsarepreparedtosupplyateachdifferentpricelevel.Theeffectscanbeshownbelow.4.2.4WhenGovernmentImposes534.2.4WhenGovernmentImposesanIndirectTax4.2.4WhenGovernmentImposes544.2.5WhenGovernmentProvidesSubsidytoProducersSubsidyisaformofaidthatwillreducethecostofproductionandhencewillincreasethesupplyofthegoodorserviceateachdifferentpricelevel.Theeffectscanbeshownbelow.4.2.5WhenGovernmentProvides554.2.5WhenGovernmentProvidesSubsidytoProducers4.2.5WhenGovernmentProvides564.3.1PriceCeilingDefinition:Itisthehighestpricethatproducersareallowedtochargeonthegoodsorservicesprovided.•Purposeofimplementation•Toencouragetheconsumptionofcertaingoods•Tolowerthecostofliving•Toprotectlowincomeearners4.3.1PriceCeilingDefinition:574.3.1PriceCeilingFromthediagramabove:-•Controlledpricewouldnowbelower•Therewillbeashortagewherequantitydemandedexceedsquantitysupplied•Blackmarketmaydevelopassomeconsumersmaybewillingtopayapricehigherthanthecontrolledpricetoobtainthegoods4.3.1PriceCeilingFromthed584.3.2PriceFloorDefinition:Itisthelowestpricethataparticulargoodorservicecanbepurchased.•Purposeofimplementation•Protectworkerswhohaveweakbargainingpower•Discouragetheconsumptionofcertaingoods4.3.2PriceFloorDefinition:I594.3.2PriceFloorFromthediagramabove:-•Controlledpricewouldnowbehigher•Therewillbeasurpluswherequantitysuppliedexceedsquantitydemanded•Unemploymentmayincrease4.3.2PriceFloorFromthediag604.4ReviewQuestions1.Explainhowpricesaredetermined.2.Howwouldthefollowingeventsaffecttheequilibriumpriceandquantitytradedofcoffeewhen:a.Governmentgivessubsidiestocoffeeproducers.b.Badweatherdestroyscoffeeplants.3.Explain:a.Priceceilingb.Pricefloor4.4ReviewQuestions1.Explain61西方经济学ECONOMICS西方经济学ECONOMICS62ECONOMICS参考书：PaulA.Samuelson,WilliamD.NordhausEconomics,18EditionTheMcGraw-HillCompanies,Inc.2005中国人民邮电出版社ECONOMICS参考书：63ECONOMICSUnit1:NatureandscopeofeconomicsUnit2:TheoryofdemandUnit3:TheoryofsupplyUnit4:PricedeterminationUnit5:ElasticityofdemandUnit6:PriceelasticityofsupplyUnit7:EconomiesoflargescaleproductionandexistenceofsmallfirmsUnit8:ProductioncostUnit9:PerfectCompetitionUnit10:MonopolyUnit11:MonopolisticcompetitionECONOMICSUnit1:Natureands64ECONOMICSUnit12:OligopolyUnit13:Consumerpriceindex-CPIUnit14:Centralbank-monetarypolicyUnit15:InflationUnit16:UnemploymentUnit17:Roleofgovernment_fiscalpolicyUnit18:NationalincomeaccountingUnit19:Nationalincomeapplication-standardoflivingUnit20:KeynestheoryofincomeandemploymentUnit21:InternationaltradeUnit22:FreetradeandprotectionECONOMICSUnit12:Oligopoly65Natureandscopeofeconomics1.1WhatisEconomics?1.2VariousDefinitionsofEconomics1.3BranchesofEconomicsMicroeconomicsMacroeconomics1.4TheBasicEconomicProblems1.5ConceptofOpportunityCost1.6ProductionPossibilityCurve(PPC)1.7ReviewQuestionsNatureandscopeofeconomics1661.1WhatisEconomics?Everywherehumanbeingsarefoundtomakeeffortsandearnmoneyandthenspendthismoneytosatisfytheirwants.Therefore,theactivitiesconcerningtheearningandspendingofwealtharestudiedunderEconomics.(Eco.)

1.1WhatisEconomics?Everywh671.2VariousDefinitionsofEconomicsAdamSmithEconomicsisastudyof"anenquiryintothenatureandcausesofwealthofnations."J.S.MillsEconomicsisastudyof"thepracticalscienceoftheproductionanddistributionofwealth."L.RobbinsEconomicsisa"sciencewhichstudieshumanbehaviourasarelationshipbetweenendandscarcemeanswhichhavealternativeuses."1.2VariousDefinitionsofEc681.2VariousDefinitionsofEconomicsRichardLipsey:Moderneco.concerns:-a)Theallocationofasociety'sresourcesamongalternativeusesandthedistributionofthesociety'soutputamongindividualsandgroup.b)Thewaysinwhichproductionanddistributionchangesovertime.c)Theefficientandinefficienciesofeconomicsystems.1.2VariousDefinitionsofEc691.2VariousDefinitionsofEconomicsGeneralDefinitionEconomicsisastudyofhowpeopleallocatetheirlimitedresourcessuchasland,labourandcapitaltoprovidefortheirunlimitedwants.1.2VariousDefinitionsofEc70MicroeconomicsMicroeconomicsstudiestheeconomicdecisionmakingoffirmsandindividualsinamarketsetting.MicroeconomicsMicroeconomicss71MicroeconomicsTheissuesthatarestudiedunderMicroeconomicanalysisare:a)Howconsumersbehave.b)Howbusinessfirmsmakechoices.c)Howpricesaredeterminedinthemarkets.d)Howtaxesandpricecontrolsaffectconsumersandproducers.e)Howthestructureofmarketsaffecteconomicperformance.f)Howwages,interestrates,rentandprofitsaredetermined.g)Howincomeisdistributedamongfamilies.MicroeconomicsTheissuesthat72MacroeconomicsMacroeconomicsisastudyofeconomyasawholeanditconcernstherelationshipamongaggregate(total)measures.MacroeconomicsMacroeconomicsi73MacroeconomicsTheissuesthatarestudiedundermacroeconomicanalysisare:a)NationalIncome.b)Nation'smoneysupplyandmoneydemand.c)Thevalueofmoney.d)Inflationanditsdeterminants.e)Macroeconomicobjectivessuchaspricestability,fullemployment,BalanceofPaymentsandEconomicgrowth.f)Governmentpolicies(e.g.MonetaryandFiscalPolicies).g)PublicFinance(e.g.Governmentrevenueandexpenditure).MacroeconomicsTheissuesthat741.4TheBasicEconomicProblemsInaneconomy,peoplehaveunlimiteddesireforgoodsandservices(g&s),i.e.unlimitedwants,buttheresourcesintheworldarelimitedandsowecannotsatisfyallourwantsandareforcedtochooseastowhichgoodstoproduce.Therefore,scarcityandchoiceor"limitedresourcesandunlimitedwants"sumupthebasiceconomicproblem.Choiceisdeterminedby:i.Scaleofpreferenceii.Opportunitycost1.4TheBasicEconomicProble751.4TheBasicEconomicProblemsWecansummarisethisideaintothefollowingfigure:

1.4TheBasicEconomicProble761.4TheBasicEconomicProblemsAswearefacedwiththeproblemofscarcity,thereare3importanteconomicdecisionstobeconsidered.i)Whatgoods&servicestobeproducedandinwhatquantityi.e.howmuchtobeproduced?Thisconcernswiththeallocationofscarceresourcesamongalternativeuses.ii)Howorbywhatmethodgoods&servicesshouldbeproduced?Thisconcernswithchoosingthemostefficientmethodofproduction.iii)Forwhomaregoods&servicestobeproduced,i.e.whoaretoenjoythegoods&servicesproduced?Thisconcernswiththedistributionofsuchgoods&services.1.4TheBasicEconomicProble771.5ConceptofOpportunityCost

Opportunitycostofsatisfyingawantisthenextbestalternativethathastobeforgone,(i.e.thecostofgivingupsomethinginordertoobtainsomethingelse.)1.5ConceptofOpportunityCo781.5ConceptofOpportunityCost

1.5ConceptofOpportunityCo791.5ConceptofOpportunityCost

1.5ConceptofOpportunityCo801.5ConceptofOpportunityCost

E.g.Apersonhas$5andhecanspendonchocolateorchewinggumoracombinationofboth.Priceofabarofchocolate=$0.50Priceofabarofchewinggum=$0.20Chocolate

Chewinggum100856104152200251.5ConceptofOpportunityCo811.5ConceptofOpportunityCost

Thereare6attainablecombinationsavailabletohimusingallhismoney.Assumingthatheisconsuming6barsofchocolateand10barsofchewinggum,theopportunitycostofthe8thbarofchocolateiswhathemustgiveupinordertogetthat8thbar,whichinthiscaseis5barsofchewinggum.(10-5)Thelineontheabovediagramshowsaconstantopportunitycostofconsuming2additionalbarsofchocolateis5barsofchewinggum.Opportunitycostisrepresentedbytheslopeofthatline.1.5ConceptofOpportunityCo821.6ProductionPossibilityCurve(PPC)ProductionPossibilitycurveisdefinedasthecurvethatshowsthegreatestpossiblequantitiesofgoodsthatcanbeproducedwiththeavailableresourcesatagivenleveloftechnology.Example:Combination

Consumptiongoods

InvestmentgoodsA6500B6401.0C5103.6D4104.6E1005.2F05.31.6ProductionPossibilityCu831.6ProductionPossibilityCurve(PPC)AllcombinationsonorinsidethePPCareattainablewhilethosecombinationsoutsidethePPCareunattainablepresently,giventheresourcesandtheleveloftechnology.However,combinationsofgoodsinsidethePPCimplythatresourcesarenotfullyutilisedoremployed.1.6ProductionPossibilityCu841.7ReviewQuestions1.Theproblemofscarcityrequirescertaineconomicdecisionstobeconsidered.Whatarethesedecisions?2.Defineandexplain,withexamples,thefollowingeconomicconcepts:a.OpportunityCostb.ProductionPossibilityCurve1.7ReviewQuestions1.Thepr85Theoryofdemand2.1Definition2.2LawofDemand2.3IndividualDemandScheduleandCurve2.4MarketDemandScheduleandCurve2.5AChangeinQuantityDemandedandaChangeinDemand2.6FactorswhichCausetheDemandCurvetoShift2.7ReviewQuestionsTheoryofdemand2.1Definitio862.1DefinitionDemandreferstotherangeofquantitiesofacommodity,whichaconsumeriswillingandabletobuyatdifferentpricelevelsatagiventime.2.1DefinitionDemandreferst872.2LawofDemandIfallotherthingsremainconstant(ceterisparibus),thehighertheprice,thelowerwillbethequantitydemandedandviceversa.2.2LawofDemandIfallother882.3IndividualDemandScheduleandCurveThetablebelowisthedemandschedule,whichliststhequantityofacommoditythatwouldbedemandedatvariouspricelevelswithagivenincome.Itshowstherelationshipbetweenquantitydemandedandprice.2.3IndividualDemandSchedule892.3IndividualD