ESSENTIALS OF MICROECONOMICS ECONOMICS 201

1. ESSENTIALS OF MICROECONOMICSECONOMICS 201

2. How can you find…or avoid me?? • Where am I? • BDC 230 • How to contact me… • 664-2026 or jvangilder@csub.edu • www.csub.edu/~jvangilder • Office Hours… • MW 12:00 pm – 2:00 pm • F 1:00 pm – 2:00 pm • By appointment

3. 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

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

5. 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?

6. Competitive markets • What makes us competitive? • Sports…football 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?

7. Textbook Microeconomics 7th edition Roger Arnold

8. Attendance Policy Two phrases to live by: If you don’t want to be here…we don’t want you here If you don’t plan on staying the entire time…don’t come

9. 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 homework…What is your number? • Don’t forget it…your grade depends on it

10. Exams and Quizzes • Midterm • Monday February 6th • Quiz 1 • Friday January 20th • Quiz 2 • Friday February 24th • Final • Section 03 • Friday March 17th 8:00am - 10:30am • Section 04 • Wednesday March 15th 2:00pm – 4:30pm

11. Grade Breakdown • Midterm = 25% • Cumulative Final = 30% • Quizzes= 20% • Homework = 15% • Participation = 10%

12. Other Stuff… Academic Dishonesty Classroom Conduct Disabilities

13. Chapter 1 What is Economics About

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

15. 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

16. Thus….Economics is the SCIENCE of SCARCITY

17. Normative vs. Positive Economics • Normative • What “ought” to be • Positive • What is

18. 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.

19. 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)

20. 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

21. Why Study Economics? • Social Problems • Discrimination • Crime • Understand why things happen • Coupons • Minimum Wage • Understand the Political Process

22. Homework #1 • Chapter 1 • Questions 1 and 2

23. Beginning to Think Like an Economist …is this a good thing?

24. 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

25. Remember Scarcity Runs the Show… • What was scarcity?? • So…how 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

26. 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

27. Summary Statement of Scarcity and Related Concepts

28. 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

29. Efficiency • What is the “right amount” of time to study? • Right amount = optimal or efficient amount • Marginal Costs = Marginal Benefits

30. Economic way of thinking includes… • Analyzing scarcity • Look at opportunity cost of decisions • Measure costs and benefits • Look at marginal effects • Examine unintended effects

31. Economic Thinking Errors • Association vs. Causation • You hit red lights because you are running late • Don’t 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

32. What is this?

33. Model • Simplified version of reality • Includes only the “important” aspects • Why is a model necessary??

34. 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

35. Scientific Approach • What do you want to predict/explain? • What variables are important? • State assumptions • State hypothesis • Test • If results are good…Yeah You!! • If results are bad…amend or reject theory

36. Building and Testing a Theory

37. 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 year…make decisions to maximize profits

38. Appendix A Working with Diagrams

39. Types of Relationships between variables • Direct • Positive • Inverse • Negative • No Relationship • Variables are independent

40. Two-Variable Diagram Representing an Inverse Relationship

41. Two-Variable Diagram Representing a Direct Relationship

42. Two Diagrams Representing Independence between Two Variables

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

44. To calculate slope • Find two points on any straight line

45. What sign do you expect the slope to have? • Direct relationship • Positive • Inverse relationship • Negative • No Relationship • 0 or infinity

46. Calculating Slopes

47. Calculating Slopes

48. The 45 Line

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

50. In-class exercise 1 Do we understand Chapter 1?