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MICROECONOMICS For Undergraduates SYLLABUS Objectives: to improve economic literacy as well as critical thinking and problem solving skills to explain and predict economic issues Pre-requisites: Math Student task: Class attendance (90%) Actively participate in-class activity Complete all homework and other tasks Don’t have private conversation or arrive at class late, which can disrupt the learning environment of the class BOOKS AND READING Mankiw,N.Gregory,(2009) Principles of Economics -Fifth edition, South Western CENGAGE Learning David Begg, Economics, 8th edition, Mc Graw Hill Education Lecture’s slides TOPICS IN MICROECONOMICS Basic concepts in economics and microeconomics Demand and supply Consumer Behavior Producer Behavior Market structures The role of the Government in the economy MICROECONOMICS LECTURE Basic concepts in economics and microeconomics ECONOMICS Physicists try to explain the existence of black holes in outer space Biologists try to explain why dinosaurs became extinct, Economists try to explain puzzling observations and facts about the economy WHAT IS ECONOMICS? Economy – “oikonomos” (Greek): “One who manages a household” Household - many decisions of allocate limited resources Society - many decisions Allocate resources Allocate output 1.1Resources Land: Nature resouces Labor (L): Capital: Physical capital (K) Entrepreneurship Resources are scarce 1.2 WHAT IS ECONOMICS? Economics is to study of how society manages its scarce resources Economists study: How people make decisions How people interact with one another Analyze forces and trends that affect the economy as a whole FOUNDATIONS OF MODERN ECONOMICS CLASSICAL ADAM SMITH: The Wealth of Nations (1776) ALFRED MARSHALL: Principles of Economics (1890) NEOCLASSICAL During the 1940s - 1950s Modern classical school of economics with key ideas Three Questions What is to be produced? How are the goods to be produced? How can resources be used efficiently? For whom are the goods to be produced? The market economies What are the key elements of the market economy? Freely determined price Property rights and incentives Competitive markets Freedom to trade at home and abroad A role for the Government The role of NGOs The optimum economic choice 2.1.People face trade- offs Make decisions: Compare cost with benefits of alternatives 2.2 Opportunity cost OC: Whatever must be given up to obtain one item Tool for choice Second model: The production possibilities frontier Production possibilities frontier A graph Combinations of output that the economy can possibly produce Given the available Factors of production Production technology 25 The production possibilities frontier Quantity of Computers Produced C F 3,000 A 2,200 2,000 B Production Possibilities Frontier D 1,000 E 300 600 700 The production possibilities frontier shows the combinations of output - in this case, cars and computers - that the economy can possibly produce The economy can produce any combination on or inside the frontier Points outside the frontier are not feasible given the economy’s resources 1,000 Quantity of Cars Produced 26 Second model: The production possibilities frontier Efficient levels of production Points on the PPF Trade-off: The only way to get more of one good is to get less of the other good Inefficient levels of production Points inside PPF 27 Second model: The production possibilities frontier Bowed out production possibilities frontier Opportunity cost of one good= Give up the other good Resource specialization 28 Second model: The production possibilities frontier Technological advance Outward shift of the production possibilities frontier Economic growth Produce more of both goods 29 A shift in the production possibilities frontier Quantity of Computers Produced 4,000 3,000 G 2,300 2,200 A 600 650 A technological advance in the computer industry enables the economy to produce more computers for any given number of cars As a result, the production possibilities frontier shifts outward If the economy moves from point A to point G, then the production of both cars and computers increases 1,000 Quantity of Cars Produced 30 MATHEMATICS REVISION Slope of the curve y 8 20 Slope= (28-20) = 2-1 x Revision (cont.) Six types of relationship Increasin g positive slope Increasing negative slope Decreasin g Positive slope Decreasing negative slope Math revision (Cont.) Constant slope Constant positive slope Constant negative slope Facts and impacts Movement along the curve vs shift of the curve Movement along the curve: The line y shifts When x and y changes when Z changes Shift of the curve: Z2 When another variable z1 other than x and y change ⇒ A third variable shift the curve x ... TOPICS IN MICROECONOMICS Basic concepts in economics and microeconomics Demand and supply Consumer Behavior Producer Behavior Market structures The role of the Government in the economy MICROECONOMICS... LECTURE Basic concepts in economics and microeconomics ECONOMICS Physicists try to explain the existence of black holes in outer space Biologists try to explain why dinosaurs became extinct,... economics with key ideas KEY IDEAS OF NEOCLASSICAL ECONOMICS Scarcity Opportunity cost Thinking at the margin Incentives in individual decision making The role of the markets Market failure
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