Microeconomic Principles: Introduction

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Microeconomic Principles Introduction

• Igor Lukashin
• Lecture 1
• January 20, 1999
• Arizona State University

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What is economics?

• Economics is the study of choices people make

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State of the Union Address Wide variety of
economic issues

• Government power and necessity (internet)
• Social security and Medicare reform
• School reform measures to improve student
  learning
• Anti-discrimination programs
• International Trade

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Lets Get Acquainted

• Your name (Last, First)
• Your ASU ID
• Your major
• Any previous ASU economics classes you took
• 2-3 things that you do well
• What you think makes you the most different from
  the rest of the class

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Definitions

• Scarcity When less of something is available
  than is wanted at the zero price.
• Economic Good Any item that is scarce
• Free good a good for which there is no scarcity
• Economic Bad any item we would pay to have less

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Resources, a.k.a factors of production, or inputs

• Goods used to produce other goods
• Land all natural resources as well as the land
  itself
• Labor the physical and intellectual services of
  the people
• Capital machinery equipment

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Flow of resources and income

• Resources are used to produce goods and services
• Resource owners get income from selling their
  resources
• Income is used to purchase goods from the
  producers

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What is economics? 2

• Economics is the study of how people choose to
  use their scarce resources to attempt to satisfy
  their unlimited wants

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How do people make choices?

• Rational self-interest how people choose the
  options that give them the greatest amount of
  satisfaction
• Depends on
• Available information
• Perception of best interest
• Expectations about the future
• Bounded rationality imperfect information and
  foresight

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The Economic ApproachPositive and Normative
Analyses

• Positive analysis analysis of what is
• Longer prison terms and stiffer penalties reduce
  crime rate.
• Normative analysis analysis of what ought to be
• The punishment for criminals should be more
  severe.

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Scientific Method the Five Steps

• Recognizing a problem
• Making assumptions
• Developing a model
• Using the model to make predictions
• Testing the models predictions

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Scientific Method Term Definitions

• Theory or Model a simplification or abstraction
  of the real world that enables scientists to
  organize their thoughts
• Assumptions statements accepted as true without
  proof
• Ceteris Paribus other things being equal or
  everything else held constant
• Tests trials used to determine if a model agrees
  with the facts

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Common Mistakes

• Attributing other peoples actions to ignorance
  or stupidity
• Fallacy of composition assuming that what
  applies in the case of one applies to the case of
  many
• Association as causation assuming that if events
  tend to occur together, one causes the other

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Microeconomics and Macroeconomics

• Microeconomics the study of economics at the
  level of the individual
• Macroeconomics the study of the economy as a
  whole