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Welcome to

Microeconomics (ECON15269G)

Text:Canadian Microeconomics:Problems and Policies (10th edition)Brian Lyons, Pearson Prentice Hall

Text includes a Study Guide withreview questions and answersat the end of each chapter.

Instructor:Office:Phone:

E-mail:


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Organization of the Course

Classes:How you learn it: Cover main pointsand highlights

Page-referenced to:

Textbook:

Adds details re:the objectives

What you need to know: Learning 1. RecallOutcomes 2. Understanding

3. Application

How you check

your progress:

How you are

evaluated: See next slide.

In the text:Review Questions

Critical Thinking Questionsafter each chapter(with answers)

On SLATE:Self-Check Questions

after each chapter(with answers & feedback)

What you needto do:

A To Do list foreach chapter,on SLATE


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Quiz/Test Coverage Marks

Quiz #1 Chapters 1-3 10


Test #1 Chapters 1-6 30

Quiz #3 Chapters 7 and 9 10


Test #2 Chapters 7 and 9-12 30

Total 100

EVALUATION SYSTEM


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A typical To Do list for a chapter

To Do List for Chapter 1 Done

Learning Activities:

1. Read the Overview for Chapter 1.

2. Read the Learning Outcomes for Chapter 1.

3. Read Chapter 1 in the text.

4. Review the PowerPoint slideshow for Chapter 1.

Practice Exercises:1. Do the self-check questions on SLATE.

2. Do the Review Questions in the text (pages 16-18); check youranswers (page 345).

3. Do Critical Thinking questions #1-5 in the text (pp.18-19); check

your answers (p.345).


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QUESTIONS?

See the Frequently Asked Questions Filein the Introduction and Orientationsection.


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Chapter 1

Introduction


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Today, we enjoy a highstandard of living

whereas our great-grandparents lived without the things we have today-- AND worked much longer hours!

What has made our standard of living so much higher?

High consumptionof goods & services per personis made possible by

highproductionof goods & services per person.

PRODUCTIVITY(output per worker per hour)

The key is


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The Basic Economic Problem of Scarcity

Productive Inputs

Labour

Capital

equipment

Naturalresources

EconomicSystem

Goods & services

to satisfypeoples wants

The scarcity problem

Pages 4-6

In limited supply

Seeminglyunlimited

Output


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Opportunity CostDeserted Island Scenario:

2 products, 8 workers.Each worker can produce

1 unit of food per day or1 unit of fuel per day.

Food:4 workers4 units/day

Fuel:4 workers4 units/day

Want 25%more food:

Food:5 workers5 units/day

Basic problem ofscarcity:We lack the resources toproduce everything that we want.

If we produce more

of one good,Fuel:3 workers3 units/day

What is the costof the extra unit of food per day?

One unit of fuel per day theopportunity costof the unitof food:

What elsecould have been produced with

the same resources (& consumed). Pa e 6-10

we must acceptlessof another.


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Suppose that in an island mini-economy there were:

2 people catching a total of 6 fish per day and2 people picking a total of 8 kilograms of fruit per day

To produce 3 more fish/day transfer 1 worker from fruit production,where he/she could have produced4 kg of fruit/day.

If they decided that they wanted3 more fish each day, whatwould be theopportunity costof the

additional 3 fish?

4 kilograms of fruit per day


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Product A

10 20 30 40 Product B

40

30

20

10

0

A Production-Possibilities Curve

40 of A; 0 of B

40 of B; 0 of A

You can have more of B,

IFyou are prepared to

accept less of A(the opportunity cost)

Page 7-10


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The opportunity cost of a $9,000automobile that you areconsidering buying is:

(a) $9,000.

(b) $200 per month payment (principal and interest)on the loan that was needed to buy the car.

(c) not a serious consideration in the decisionwhether or not to buy the car.

(d) the boat and fishing vacationthat you could have boughtinstead of the car.

(e) zero, if you can borrowthe $9,000.


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Created by Brian Lyons 2008

What is the opportunity cost ofthe government spending$2 billion more on health care?

$2 billion less available for:

education

the environment pensions day care national defence etc. or.?

Consumer goods(beer & pizza)via higher taxes


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What is the opportunity costof your attending college?

Tuition $Other college fees

$ for books, etc.

PLUS Foregone income

What you could haveboughtwith:


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How could the islanders get 5 units of food withouthaving toaccept a reduction in fuel production from 4 units to 3 units?

The 4 food workers are producing 4units of food/day(1.00 units of food/worker/day)

How can we overcome the scarcity problem?

i.e. Ifproduction per food worker increased

from 1.00 units/day to 1.25 (an increase of 25%),they could have more food withouta loss of fuel.

The key is increasing productionper worker,

or productivity.

IF their production increasedto 5units of food/day(1.25 units of food/worker/day)


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Productivity and the Standard of Living

IF theproductivityof food workers increased by 25% 5 units of food are available each day instead of4

IF theproductivityof fuel workers increased by 25% 5 units of fuel are available each day instead of4

25% more

25% more

Higherproduction per worker

is the basis for

higherconsumption per person

Higherproductivity is the key to a higher standard of living

and

If the productivity of workers in generalincreases,

consumption per person (the standard of living) can increase.

Page 5

M i P d ti it


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A factory employs 15 workers who work 8 hours per day.It produces 600 units of product per day.

What is theproductivityof the factorys workers?

______________

120 worker-hours(15 workers X 8 hours)

5 unitsper worker per hour is productivity, which isa measure of efficiencyrather than total output.

Measuring Productivity

The proper definition ofproductivity is:output per workerperhour

600 units

600 units per day is the total production of the factory.

= 5 units per worker per hour

P d ti it d P d ti C t


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Productivity and Production Costs

In the previous example, suppose each worker ispaid $15 per hour and produces 5 units in an hour.

What is the labour cost per unit produced?

$155 units

Suppose that workerproductivityincreasesfrom 5 to 6 units per hour.

What happens to labour cost per unit?

It falls to $15

6Labour efficiency has improved, whether it is measured by

higher output per worker per hourorlower labour cost per unit.

= $3.00 per unit

= $2.50 per unit.


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In the long run, increases in productivity that is, inoutput per worker per hour are the only way for a countryto raise its living standards.

But howcan we increase productivity?

Various factors affect productivity, but one key iscapital equipment*:

CapitalEquipment*

Page 5, 12

Higher outputper worker/hour(productivity) Higherstandardof living* Tools, machinery, equipment, computers, etc.


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0

50

100

150

200

250

300

350

400

450

500

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54

Long-Term Productivity Growth

If productivity grows at 1.3% /year, it takes 54 years to double.

If productivity grows at 3.0% /year, it doubles in only 24 years.

Canadas productivity grew by 3% per year before1977, but only 1.3% per year since then.

3% growth rate

1.3% growth rate

Th 72 F l


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The 72 Formula

If a variable is increasing at a compound rate,the number of years it will take to double can be estimated as

72Rate of increase (%)

Eg If productivity grows 3%per year, it will double in 723 = 24 years

If population grows by 1.5%per year, it will double in

721.5

= 48 years

$1,000 invested at a compoundrate of return of 10% per yearwill grow to $2,000 in

7210

= 7.2 years

Eff ti d Effi i


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Effectiveness and Efficiency

Because economic resources are scarce, it is importantthat they be used well, or effectivelyand efficiently:

Effectiveness:

&

Efficiency:

Producing goods & servicesthat are wanted and needed

Producing goods & services at a

low production cost per unit.

High standardof living

Consumers enjoy lots of usefulgoods & services, at low prices

Page 10-11


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A companys sales staff providefeedback and suggestions tomanagement, based on theirexperiences with customers.

Increase effectiveness

through improvement of products & services

Explain how each of the following decisions would

be intended to affect eithereffectiveness orefficiency:


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The introduction of a piece rate incentive plan, under whichworkers are paid according to the number of units they

produce.

Increase efficiency,

by motivating workersto producemore units per hour lower production cost per unit & higher output

Any possible negative side-effects?

Could reduce effectiveness (eg-product quality),if workers hurried too much.


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company reduces staff in order to cut costsd increase profits.

Increase efficiency,as fewer workers must handle the same amount of business/production lower production cost per unit

Any possible negative side-effects?

Could reduce effectiveness (i.e. quality of the

product or service), if workers were overworked.


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A profit sharing plan for all employees,whereby a portion of the firms annualprofits are shared with employees.

Efficiency

Effectiveness

Both should increase.


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The use of industrial robots that are programmed toperform industrial tasks repetitively and with precision.

Efficiency

Effectiveness

Both should increase.


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How might you measure the effectivenessof Sheridan College?

How might you measure the efficiencyof Sheridan College?

job success of graduates

government uses KPI (Key Performance Indicator)surveys of students, graduates and employers

cost per student (lower = more efficient)

class sizes (larger lower cost per student more efficient)

students per square metre (more = more efficientuse of facilities)

students per teacher (more = more efficientuse of teachers)


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How might you increase the efficiencyof Sheridan College?

What effect might this have on the effectivenessof Sheridan College?

Note the conflict between goals -- a more complexmanagement task than automating a factory.

Increase labour productivity via larger classes

Reduce labour costs via more part-time teachers

Reduce it - less help for students (quality of service)- less time for curriculum development

(quality of product)


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The Three Basic Questions of Economics

Because we lack the resources to produce everything

that we would like to have, society must make choices:

. Whatto Produce(and not produce)

i.e. set priorities

. Howto Produce it- high volume/low cost

3. Who gets how muchor how to divide it up

Pages 11-13

effectiveness as a goal

efficiency as a goal


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1. What to produce?

more food? more cars?

more DVD players? more day care centres? more education? more health care services? more seniors homes? more health care facilities?

and what notto produce, due to the reality ofopportunity cost; which means that:

moreof one thing means lessof something else

Must set priorities decide what to produce

Page 11-12

Th t b i h i C G d C it l G d


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The most basic choice: Consumer Goods vs Capital Goods

Consumer goods(food, fuel, etc.)

ECONOMIC RESOURCES

Capital goods (tools, equipment, etc.)

Benefits in thepresent (now)

Benefits inthe future

Need a balance

Page 12

2 H t d it?


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2. How to produce it?

Goal is efficiency higher output at lower cost per unit= a question ofproduction methods:what combination of labour & equipment to use

so as to get maximum output per unit of input?

remembering that building equipment (capital goods

brings not only benefits, but also costs (opportunity costs),in terms of:

reduced production of other goods consumer goodsthat could be enjoyed in the present.

Page 12-13

3 How to Divide Up the Economic Pie?


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Created by Brian Lyons 2008

3. How to Divide Up the Economic Pie ?

How should the goods & services we produce be dividedamong the people?

Equally?Or should some get more than others?

Society will prosper economically

if the work of its people is effective & efficient.

want incentivesfor people to be effective & efficient= an argument for economic inequality

But how much inequality is socially acceptable?

and how much should we share with those whoare not able to contribute as much as others?

or not willingto do so? Page 13

Th 3 b i i ti


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The 3 basic economic questions are:

1. What goods/services to produce?(and notproduce)

2. How to produce these goods/ services?(the production methods to use)

3. For whom to produce, or how to divide up thesegoods & services? (Who will get how much?)

Every society faces these questions

But how to answerthem?

Chapter 2 how the economic system works

Page 14


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A companys decision to introduce a newcar

that is designed in a manner that willappeal

to higher-income women is an example of

(a) a what to produce decision.

(b) a how to produce decision.(c) a for whom decision.(d) a why to produce decision.(e) None of the above.


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A government decision to increase incometaxes

on high-income Canadians by $10 billion and

toreduce income taxes on low-income Canadians

by$5 billion and to increase financial support to

unemployed Canadians by $5 billion is anexampleof

(a) a what to produce decision.(b) a how to produce decision.

(c) a why to produce decision.(d) a for whom decision.(e) None of the above.


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John works for 4 hours and picks 12 baskets of berries.Jane works for 3 hours and picks 12 baskets of berries.

This means that(a) Johns productivity and Janes productivity

are equal.(b) Janes productivity is 33 percent higher

than Johns productivity.(c) Janes productivity is 50 percent higher

than Johns productivity.(d) John should be fired.

Janes productivity is 4 per hour (12/3).Johns productivity is 3 per hour (12/4).

4 is 33% higher than 3.(1 more on the base of 3, or 1/3)


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How to Succeed?

Know your facts

Think logically

Communicate effectively

OK, but what about in thiscourse?


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How to Succeed?

After each chapter: PRACTICE & CHECK YOUR ANSWERS

Do the Review Questions and Critical Thinking Questionsafter the chapter in the text.

Do the on-line self-check on SLATE.

Whenever studying: USE THE LEARNING OUTCOMES

These will focus your efforts on what will be coveredon quizzes and tests.

If you attend classes, work regularly at practicing withthe review and self-check questions, and use theobjectives when studying, then you should do well in thiscourse.


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Next: Chapter 2:

Canadas Economic System

Do the Self-Check questions on SLATE.

Do the Review Questions and CriticalThinking questions at the end of Chapter1, and check your answers in theappendix to the text.

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