ESSENTIALS OF MICROECONOMICS ECONOMICS 201

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ESSENTIALS OF MICROECONOMICSECONOMICS 201

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How can you findor avoid me??

• Where am I?
• BDC 230
• How to contact me
• 664-2026 or jvangilder_at_csub.edu
• www.csub.edu/jvangilder
• Office Hours
• MW 1200 pm 200 pm
• F 100 pm 200 pm
• By appointment

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What is Microeconomics?

• Two parts
• Study of the behavior of the individual
• Study of the behavior of the firm
• What type of Behavior?
• Consumer
• Buying and working
• Firm
• Producing and selling

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What are some major changes in the economy that
have happened in the last six months?

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Objectives

• Role of prices
• Why do we have prices?
• How are prices determined?
• Who determines prices?
• Supply and Demand
• What are they?
• How do we draw them?
• What changes each?

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• Competitive markets
• What makes us competitive?
• Sportsfootball vs. tennis
• Differing market Characteristics
• Control over prices
• Number of firms/customers
• Analyze real-life situations
• Why did the minimum wage change?
• Why are gas prices increasing again?
• Why do businesses have sales?
• Why do doctor visits cost so much?

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Textbook

• Microeconomics
• 7th edition
• Roger Arnold

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Attendance Policy

• Two phrases to live by
• If you dont want to be herewe dont want you
  here
• If you dont plan on staying the entire
  timedont come

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Homework

• Due at the BEGINNING of class following the
  assigned questions
• Homework review sessions
• Students do problems
• Answer need not be correct to receive credit
• Grading of homeworkWhat is your number?
• Dont forget ityour grade depends on it

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Exams and Quizzes

• Midterm
• Monday February 6th
• Quiz 1
• Friday January 20th
• Quiz 2
• Friday February 24th
• Final
• Section 03
• Friday March 17th 800am - 1030am
• Section 04
• Wednesday March 15th 200pm 430pm

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Grade Breakdown

• Midterm 25
• Cumulative Final 30
• Quizzes 20
• Homework 15
• Participation 10

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Other Stuff

• Academic Dishonesty
• Classroom Conduct
• Disabilities

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Chapter 1 What is Economics About
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Definition of Economics

• SCIENCE of how individuals and societies deal
  with the fact that wants are greater than
  resources available to satisfy those wants

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Scarcity

• Wants are greater than the resources available to
  fill those wants
• What do you have scarcity of???
• Money
• Time
• What do firms have scarcity of???
• Labor
• Land
• Capital

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Thus.Economics is the SCIENCE of SCARCITY

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Normative vs. Positive Economics

• Normative
• What ought to be
• Positive
• What is

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Examples Positive or Normative?

• The government fought inflation during the early
  1980s because it felt the inflation was damaging
  potential long-term economic growth.
• The government should cut taxes in order to
  stimulate consumption.
• Increases in consumer spending improved the
  Japanese economy last year.
• Balancing the federal budget would be good for
  the economy.

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Micro vs. Macro

• Microeconomics
• Study of human behavior and choice
• Looks at SMALL units (individual, market, single
  firm)
• Macroeconomics
• Study of human behavior and choices
• Looks at LARGE units (aggregated markets, whole
  economy)

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Economic Way of Thinking

• Watch
• An economist is someone that sees something
  working in practice and asks if it would would in
  principle
• Think
• Identify

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Why Study Economics?

• Social Problems
• Discrimination
• Crime
• Understand why things happen
• Coupons
• Minimum Wage
• Understand the Political Process

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Homework 1

• Chapter 1
• Questions 1 and 2

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Beginning to Think Like an Economist

• is this a good thing?

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Defining Economic Goods

• Utility
• Satisfaction you receive from consuming a product
• Good vs. Bad
• Tangibility
• Can the good be touched or is it a service?
• Resources or factors of production used
• Land natural resources
• Labor Physical and mental talents of people
• Capital produced goods that can be used as
  inputs for further production
• Entrepreneurship talent of organizing
  resources, seeking new opportunities, and
  developing new ways of doing things

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Remember Scarcity Runs the Show

• What was scarcity??
• Sohow do we make sure that only those who REALLY
  need the good get it??
• Prices
• System of rationing of the good
• Cause people to compete for the item

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Opportunity Cost

• Value of the next best alternative foregone
• Pizza vs CD
• Pizza for 1.00 per slice CD for 15.00
• Revolutionary War
• The British and their red coats
• Big Macs
• Big Macs in Japan cost 8.25
• Highway System
• Paid for with taxes

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Summary Statement of Scarcity and Related
Concepts
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Costs and Benefits at the Margin

• What is the margin??
• The last or additional
• Marginal Cost
• The cost of the last unit employed
• Marginal Benefits
• The benefit of the last unit employed
• Unintended effects
• Minimum wage
• Gun bounties
• Seat belts

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Efficiency

• What is the right amount of time to study?
• Right amount optimal or efficient amount
• Marginal Costs Marginal Benefits

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Economic way of thinking includes

• Analyzing scarcity
• Look at opportunity cost of decisions
• Measure costs and benefits
• Look at marginal effects
• Examine unintended effects

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Economic Thinking Errors

• Association vs. Causation
• You hit red lights because you are running late
• Dont study for a test so you fail
• Fallacy of Composition
• What is good for the individual is good for the
  group
• Forgetting Ceteris Paribus
• All else remains constant

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What is this?
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Model

• Simplified version of reality
• Includes only the important aspects
• Why is a model necessary??

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Parts of a Theory

• Variables
• Magnitudes that can change
• Assumptions
• Ideas about event that will not allow to change
• Hypothesis
• Educated guess
• Predictions
• Based on hypothesis and assumptions

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Scientific Approach

• What do you want to predict/explain?
• What variables are important?
• State assumptions
• State hypothesis
• Test
• If results are goodYeah You!!
• If results are badamend or reject theory

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Building and Testing a Theory
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How do we judge theories?

• Look at how well they predict
• NOT by the assumptions
• Example Firms try to maximize profits
• Do they think about this every second?
• Probably not
• Over the course of the yearmake decisions to
  maximize profits

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Appendix A

• Working with Diagrams

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Types of Relationships between variables

• Direct
• Positive
• Inverse
• Negative
• No Relationship
• Variables are independent

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Two-Variable Diagram Representing an Inverse
Relationship
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Two-Variable Diagram Representing a Direct
Relationship
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Two Diagrams Representing Independence between
Two Variables
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Slope

• Used to see how a variable changes in response to
  another variable changing

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To calculate slope

• Find two points on any straight line

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What sign do you expect the slope to have?

• Direct relationship
• Positive
• Inverse relationship
• Negative
• No Relationship
• 0 or infinity

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Calculating Slopes
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Calculating Slopes
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The 45 Line
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Homework

• Chapter 1
• Questions 4, 5, 7, 8
• Chapter 1 Appendix
• Questions 6, 7, 9

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In-class exercise 1

• Do we understand Chapter 1?

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Appendix B

• Should you major in Economics??

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Five myths about economics and an economics major

• Economics is all mathematics and statistics
• Economics is only about inflation, interest
  rates, unemployment, and other such things
• People become economists only if they want to
  make money
• Economics wasnt very interesting in high school,
  so it isnt going to be interesting now
• Economics is a lot like business, but business is
  more marketable