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)

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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

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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

Q

AB

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