HO6e - Ch01 - Economics - M
HO6e - Ch01 - Economics - M
Chapter 1
Economics:
Foundations and
Models
What is this class about?
•
People make choices as they try to attain their goals. Choices
are necessary because we live in a world of scarcity.
•
Scarcity: A situation in which unlimited wants exceed the limited
resources available to fulfill those wants
•
Economics is the study of the choices people make to attain
their goals, given their scarce resources.
•
Economists study these choices using economic models,
simplified versions of reality used to analyze real-world economic
applications.
Panel (a) shows a bar graph of market share data for the U.S.
automobile industry; market share is represented by the height of the
bar.
Panel (b) shows a pie chart of the same data; market share is
represented by the size of the “slice of the pie”.
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Figure 1A.2 Time-Series Graphs
For example,
when the price of
pizza decreases
from $14 to $12,
the quantity of
pizza demanded
increases from 55
per week to 65
per week. Change in value on the vertical axis y Rise
Slope
Change in value on the horizontal axis x Run
So, the slope of
this line equals – Price of pizza ($12 $14) 2
Slope 0.2
2 divided by 10, Quantity of pizza (65 55) 10
or –0.2.
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Figure 1A.5 Showing Three Variables on a Graph (1 of 3)
Or, if we start on
Demand curve1 and
the price of pizza is
$12 (point C), a
decrease in the
price of hamburgers
from $1.50 to $1.00
decreases the
quantity of pizza
demanded from 65
to 60 per week
(point D) and shifts
us to Demand
curve3.
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Figure 1A.6 Graphing the Positive Relationship between
Income and Consumption
In a positive relationship
between two economic
variables, as one variable
increases, the other
variable also increases.
In a negative relationship,
as one variable increases,
the other decreases.
This figure shows the
positive relationship
between disposable
personal income and
consumption spending.
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Figure 1A.7 Determining Cause and Effect
Cost 75
75
Quantity 1
Cost 150
150
Quantity 1