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weeks 1 to 3 lectures

weeks 1 to 3 lectures - Wk1 In addition to reading the...

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Wk1 In addition to reading the lecture below, be sure to review the Key Concepts for the week's TCOs 1 and 2. Introduction We look at the behavior of consumers, businesses, and governments and try to determine how these entities affect behavior. Microeconomics examines what motivates individuals and business firms to behave as they do and traces the results of this behavior. Macroeconomics examines what motivates these aggregated entities to behave as they do and traces the results of this behavior. In order to apply the concepts to satisfy the Terminal Course Objectives ( TCOs ), you have to know and use accurate economics definitions. We are going to acquaint you with key economic terms and concepts for week 1. Scarcity and C-E-L-L Why do we study economics? Scarcity is a key word in economics! All economic resources (or production factors) are scarce, yet human wants are unlimited. Because of scarce resources, we need to economize and seek resource efficiency! In a nutshell, there are four production factors: 1. Man-Made Capital Goods (C) 2. Entrepreneurial Ability (E) 3. Land (L) 4. Labor (L) The short acronym C-E-L-L can help you remember these four production factors. An economy cannot produce sufficient goods and services to meet our unlimited wants. PPC and Circular Flow Economy We attempt to set up a scenario in which we have an agreed upon set of circumstances [model]. Ceteris Paribus [from the Latin meaning, “other things being equal”] gives us a common ground from which to examine what happens when one of these circumstances is allowed to change. Our first model is the Production Possibilities Curve ( PPC ) or Production Possibilities Frontier ( PPF ). It enables us to simplify production analysis. The same kind of model is used for household budgeting analysis. The U.S. first used the concept of the PPC during World War I to see the tradeoffs between military and civilian production. The names Guns and Butter on the PPC come from that time. What the U.S. found was in order to get additional units of military goods, it had to give up increasingly more units of civilian goods. This discovery led to the Law of Increasing Opportunity Costs which holds that, Ceteris Paribus , as production increases, the productivity of the production factors used will decrease, which causes the costs of production to increase. Can we push the PPC outward? YES, WE CAN! When the U.S. economy grows with additional resources, the PPC moves outward! This presentation teaches "the Law of Increasing Opportunity Cost," scarcity, and four factors of production
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(C E L L) as they pertain to the construction and usage of the PPC . It includes a company example and basic interactivity to aid the student in understanding the chart. Production Possibilities Curve Circular flow is the bedrock foundation of the economy. How are the four factors of production " C E L L " translated into income? Interest comes from C apital goods ( C ), profits from E ntrepreneurial Ability ( E ), rents from L and ( L ) and wages from L abor ( L ).
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