ARE 1150 1nd Edition Lecture 3 Outline of Last Lecture I. Micro vs. MacroII. Positive vs. Normative economics III. Minimum Wage Debate IV. Individual’s Economizing ProblemOutline of Current Lecture I. Individual Economizing Problem (cont.)a. Define Budget line b. DVDs and books exampleII. Society’s Economizing Problema. Economic resources III. Production Possibilities Model IV. Chapter 2: The Market system and circular flow a. Objectivesb. Market systemCurrent Lecture I. Individual Economizing Problem (cont.)a. Limited income and unlimited wants b. Budget line = a curve that shows combinations of two productions a consumer can purchase with a specific money income i. How does the change in income affect the budget line?1. An increase in income leads to more attainable items ii. How does the change in prices affect the budge line? 1. This leads to a loss of quantity of items which so you can buy as much c. DVDs and books example i. Idea of choice1. Trade offa. To obtain more DVDs you have to give up some books2. Opportunity costa. A straight-line budget constraint has a constant slope which leads to constant opportunity cost II. Society’s Economizing problema. Economic resources (or factors of production or inputs) i. Land – resources under that landii. Laboriii. Capital – physical capital – things that will produce the item iv. Entrepreneurial ability – organizes all other 3 together b. Why is money not on the list of economic resources?i. Money cant produce anything by itselfIII. Production Possibilities Model a. Helps to make production choices in the face of scarce resources assumingi. The fixed amount of available resources are fully employed ii. Fixed technology (i.e. no innovations while we analyze the model)b. Law of increasing opportunity costs: what is the intuition?i. This law explains the shape of production possibility curveii. Intuition – societies resources are better at producing somethings than others IV. Chapter 2: The Market System and Circular Flowa. Objectives i. Differentiate between the command system and the market systemii. Describe the characteristics of the market systemiii. Explain how the market system solves the production and distribution problems, accommodates change, and promotes progress iv. Describe the flow of monetary and physical resources in an economy b. Market system = private property; freedom of enterprise and choice; self-interest; competition; markets and prices; technology and capital goods;human specialization and geographic specialization; use of money; active,but limited, government c. Read this from the textbooki. Global perspective 2.1: index of economic freedomii. Figure 2.1: money facilitates trade when wants do not coincideiii. Five fundamental questionsiv. The “invisible