MICROECONOMICS DEMYSTIFIED docx

[...]... the universe as a whole, whereas microeconomics is akin to molecular chemistry, or the understanding of how the basic building blocks of the universe operate In a similar way, macroeconomics addresses the overall operation of the economic “universe,” whereas microeconomics focuses on the operations of the building blocks of that universe To be clear, this book focuses on microeconomics and the tools that... and successfully completing the end-of-chapter quizzes and the final exam that you should have a basic understanding of microeconomics consistent with a freshman-level introductory course xiii This page intentionally left blank CHAPTER 1 The Language of Economics Welcome to the study of microeconomics To many people, economics is as confusing as physics Just as we use physics every day even if we don’t...This page intentionally left blank INTRODUCTION This book provides a self-study approach to understanding the theory of microeconomics, avoiding unnecessary mathematics The approach in this book assumes that you have not studied economics before What exactly is economics? You are probably familiar with economic terms from... are probably familiar with economic terms from watching the nightly news or reading the daily newspaper Economics is often 1 Copyright © 2006 by The McGraw-Hill Companies Click here for terms of use 2 Microeconomics Demystified discussed in terms of unemployment, the stock market, gross national product, the trade deficit, or consumer confidence However, none of these topics really defines economics Instead,... of scarce resources to competing uses An economy decides three things: (a) what goods are produced and in what quantities, (b) how goods are produced, and (c) the distribution of the goods produced 3 4 Microeconomics Demystified There are diferent types of economies in today’s world A pure market economy (also known as laissez-faire capitalism) is an economy in which individual households and firms determine... can talk to each other with little difficulty However, it is valuable to also delineate general areas of focus within the overall field of economics In general, there are two major branches of economics Microeconomics is the study of individual markets, how individual agents interact within those markets, and how individual economic agents make decisions Macroeconomics is the study of national and global... less the study of numbers, such as unemployment, interest rates, and prices, as it is a study of human behavior—borrowing xi Copyright © 2006 by The McGraw-Hill Companies Click here for terms of use xii Microeconomics Demystified what “we” as economists want from the various social sciences such as sociology, political science, psychology, and anthropology However, economists do like “labels” so that we... focus on the particular question being asked An economic model is comprised of two parts: assumptions and implications The assumptions are simplifications of reality and are valid only within the context 5 Microeconomics Demystified 6 of the model Sometimes, the assumptions of an economic model may seem silly, but they always have some reason for being included in the model The assumptions of a model lead... question Summary This chapter has provided a brief introduction to the role of economics and some of the terms that are common to all fields of economics Of particular focus was the delineation between microeconomics and macroeconomics Finally, the concept of an economic model was introduced with a simple example Three basic assumptions of economic analysis were introduced: rationality, preference, and... Economics is the study of a how to read the Wall Street Journal b how to allocate unlimited resources to limited wants c the back of my eyelids d how to allocate limited resources to unlimited wants Microeconomics Demystified 8 2 An economic model is defined as a a waste of time b a set of assumptions that lead to a specific set of implications c a set of implications that lead to a specific set of assumptions .