Microeconomics

• Please provide the following information on the 3 X 5 card:

• Name

• Phone

• Email

• Something you want the class to know about you.

MicroeconomicsMicroeconomics

Introductions

Definitions

• Economics

–Is the study of how people make choices.

Definitions

• Why do we have to make choices?

• We must choose because our wants are unlimited but our resources are limited.

Limited Resources the factors of production

• 1. Natural resources (land) • 2. Labor or human effort• 3. Physical Capital machines used

to make other products• 4. Human Capital skills and

abilities• 5. Entrepreneurial Ability

Scarcity

• Term used to describe limited resources

• Time can also be scarce, and so can money.

Microeconomics

• Is the study of how individuals make choices

• We will study how choices are made by people in their roles as consumers, business leaders, and citizens.

Ceteris paribus

• Latin for “all things being equal”.

• In a graph or example, ceteris paribus means that all other variables are fixed.

Market

• Where buyers and sellers exchange things.

• Markets are not necessarily physical places anymore. E-bay is a cyber-market.

Invisible Hand

• Adam Smith in the Wealth of Nations offered the idea that individuals acting in a market to serve their own interest, frequently promote the best interest of society. Frequently, not always, as the recent business scandals show.

Production Possibilities Curves

• With a given amount of resources we can only produce a limited amount of goods or services.

• The graph on the board shows the combinations of spaghetti or lasagna dinners served.

Opportunity Cost

• The value of the choice given up.

• The 1965 Corvair Monza Story

• Opportunity Cost and the Production Possibilities Curve

Marginal

• Always think “extra” when you see the word “marginal” in economics

• The margin of averages example on the board

Supply and Demand

Selling the Answers to the Test

Demand

• Demand is the quantity that consumers are willing and able to buy at various prices

• The law of demand states that as price goes down, the quantity demanded increases.

Supply

• Supply is the quantity that producers are willing and able to sell at various prices.

• The law of supply states that as price increases the quantity supplied will increase

6 reasons to draw an new Demand Curve

• 1. Size of group

• 2. Tastes of Group

• 3. Expectations

6 Reasons (cont’d)

• 4. Income

• 5. Price of substitute good

• 6. Price of complementary good

4 reasons to draw a new Supply Curve

• 1. Number of producers

• 2. Expectations

• 3. Technology

• 4. Costs of factors of production