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Choices - there’s no way around them. What will be produced? How will it be produced? Who will get what is produced? Efficiency - the measure of how well we answer these questions. Allocative efficiency Productive efficiency Distributive efficiency
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ECO284 – ECO284 – MicroeconomicMicroeconomic
ss
Dr. Dennis FosterDr. Dennis Foster
IntroductionIntroduction
Assumptions
Build Models
Generate Conclusions/Predictions
Compare to the real world
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ECO284 - MicroeconomicsECO284 - Microeconomics A framework for understanding. . .
ScarcityScarcityChoicesChoices
(Opportunity) Costs(Opportunity) Costs
Premise:Premise: Rational self-interest Rational self-interest
Limited Resources
Unlimited Wants
Choices - Choices - there’s no way around there’s no way around
them.them. What will be produced?What will be produced?
How will it be produced?How will it be produced?
Who will get what is produced?Who will get what is produced?
Efficiency - Efficiency - the measure of how well we the measure of how well we
answer these questions.answer these questions.
Allocative efficiency
Productive efficiency
Distributive efficiency
Opportunity CostsOpportunity Costs Making tradeoffs Weighing costs and benefits
The value of the next best choice:Attending class . . .
Every person/group/society makes choices.Every person/group/society makes choices. TANSTAAFL – look it up.TANSTAAFL – look it up.
Economic methodsEconomic methods Theories & models of behavior:
Assumptions
Build Models
Generate Conclusions/Predictions
Compare to the real world
Economic methodsEconomic methods Ceteris paribus assumption. Decisions made at the margin. Decisions are made by weighing
benefits and costs. Theories cannot be proved. Beware of “logical fallacies.”
– e.g. e.g. post hocpost hoc, , non sequitornon sequitor, , anecdotesanecdotes
GraphingGraphing A picture is worth a thousand words . . .
Q = f(K,L)
K
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GraphingGraphing
When x is: and y is:1. the number of days in a week price of apples2. amount of apples people want to buy price of apples3. (In a world with only 2 goods) amount amount of wheat
of films we can produce we can produce4. amount of insulin people want to buy price of insulin5. amount of workers employed amount of hamburgers
produced per hour at the Burger King.
6. amount of white Ford Taurus’ price of white people want to buy Ford Taurus’
7. number of U.S. Senate seats number of days in the week
ECO284 – ECO284 – MicroeconomicMicroeconomic
ss
Dr. Dennis FosterDr. Dennis Foster
IntroductionIntroduction
Assumptions
Build Models
Generate Conclusions/Predictions
Compare to the real world
Q =f(K,L)
K
Q
AB
Supply
Demand
Price
Quantity
P
e
Qe
ECO284 - MicroeconomicsECO284 - Microeconomics
““Economics is the study of Economics is the study of mankind in the ordinary mankind in the ordinary
business of life.”business of life.”
--Alfred Marshall--Alfred Marshall
