Micro Economics

1. Micro Economics Prof. Dr. Mohammed I. Migdad Professor of Economics 2015-2016

2. The first semester September 2015

3. Economics Is the newist of sciences & the oldest of art Paul A. Samuelson

4. (ما عال من اقتصد) • "Will not be poor, any person who deals with the economic rationality." • Prophet Mohammed (Pease be upon him)

5. Contents of the course • CONTENTS: This course introduces basic concepts in Economics and treats main topics in Microeconomics theory . • It consists of the following chapters:

6. Chapter 1, Introduction includes • How to study economics. • Definitions of economics. • branches, pitfalls in economic, scarcity law, collecting data and basic analysis. • The three problems of economic organization. • Methodology and how to analyze. • How to read graphs.

7. Chapter 2, Supply and demand • Markets and economic systems. • Consumers demand. • Firms supply. • Equilibrium between demand & supply. • Price of goods & price theory. • Rule of Governments in economics. • Effects of D&S change on market equilibrium.

8. Chapter 3, Elasticity & its applications • Price elasticity of demand. • Elasticity & total revenue. • Practical applications to PED. • Cross price elasticity. • Income elasticity. • Price elasticity of Supply. • Supply elasticity in the S&L run. • Elasticity and tax incidence.

9. Chapter 4, consumer behavior theories • Choice and utility theory. • Marginal utility theory. • Utility theory and the low of demand. • Consumer surplus. • The indifference curve theory.

10. Chapter 5, theory of production • Pasic concept of production • The marginal rate of technical substitution. • The isoquant & isocost curves. • Producer equilibrium. • Expansion path & return to scale. • Shapes of production functions.

11. Chapter 6, Analysis of cost • Normal & Economic profit. • The relation between cost & production curves in the short run. • Cost in the long run. • Return to scale and the shape of the A.C. in the L.R. • Profit maximization. • Price discrimination.

12. Chapter 7, Industrial organization in different markets • Major market forms. • Perfect competition markets. • Monopoly and monopsony. • Oligopoly and ologopsony. • Concentration ratio for industry.

13. EVALUATION • EXAMS + ASSIGNMENTS • Final Exam 60%, • Midterm Exam 30%, • Assignments & Discussion 10%

14. MAIN TEXTBOOKS • 1- Introduction to Microeconomics, M. I. Migdad, 2013, I. U. Gaza, Economic department. • 2- Economics, Samuelson Paul A and Nordhaus William D, 2005. • 3- The Micro Economy Today, Schiller Bradley r. 1995.

15. How to study economics • The study of economics involves learning how to organize facts in economic way. • The old way thinking and the “Good versus bad model”.

16. Good V Bad Model • GvB model involves the “zero sum game”, that means “one’s loss is another’s gain. • This theory is not always correct, and economist believe in “win win theory”.

17. Understanding economics • Those who do not understand economics still try to see patterns in the facts they observe; they try to make sense of the world around them. Sometimes they use a simplistic "good-versus-bad" model. In a good-versus-bad model there are two conflicting groups classified as good people and bad people.

18. Understanding economics • These groups are usually involved in a zero-sum game; one's loss is another's gain. The Zero-sum Game is not always correct especially in economics. In economics one's gain doesn’t necessarily mean another's loss.

19. continue • To study economics, we must take into consideration separating all factors affecting each case we intend to study. • We study each part alone while other factors keep constant.

20. Economics and politics • The economic studies cannot be isolated from politics, • Some said economic is larger than to be managed by economists

21. The definition • Economics driven from the Greek words (okos) means house and (nemo) means rules.

22. Definition of Economics It is the study of wealth (Adam smith) Or It is the study of welfare (Pegout) Or it is A study of exchange and production

23. D. Of Economics • Economics is the social science that study the allocation of the scarce recourses to satisfy the unlimited wants. • Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses."

24. Marshall defined economics as "a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing. Thus it is on one side a study of wealth; and on the other, and more important side, a part of the study of man."

25. The standard definition "Economics is the social science which examines how people choose to use limited or scarce resources in attempting to satisfy their unlimited wants

26. The definition includes: • Economics is a human social science. • Study of factors of production. • Study of scarcity and choice. • Study the society’s economic goals and solving economic problems.

27. Why we study economics • Hope to make money. • Worry to be considered illiterate if they cannot understand the laws of demand and supply. • To understand the effect of the information revolution on shaping our society. • To understand the effect of internet.

28. Continue • To be fully informed about the international trade. • To study the tradeoff between inflation and unemployment. • To help you invest your saving. • To know how to make economic decision.

29. Factors of production • Any production operation needs four main factors of production: • Labor • Capital • Land • management

30. Inputs and outputs • Imputes are the resources available for the society. • Another terms for inputs are factors of productions. • FoP are land, labor, capital and management.

31. 5 or 7 msas FoP • Some time we call them as 7M and they are: man, machine, materials, money, methods’ management, markets, matter (information), motivation. • And 5 ms are: men, machines, methods, materials, money.

32. land • Or more generally natural resources that represents the gift of nature to our productive process. • It includes the land it self, the energy resources that fuel our cars & heat our homes, nonenergy resources like copper, iron and sand, the environmental resources, such as clean air and drinkable water.

33. labor • Includes the human time spend in production at all skill levels. • Includes also human time spend in management.

34. capital • Capital resources from the durable goods of an economy. • Capital goods include machines, roads, trucks.

35. management • We might consider it as a part of the labor or as a fourth factor of production.

36. Scarcity and Choice • Scarcity means that people want more than is available. Scarcity limits us both as individuals and as a society. As individuals, limited income (and time and ability) keep us from doing and having all that we might like.

37. Scarcity for society • As a society, limited resources (such as manpower, machinery, and natural resources) fix a maximum on the amount of goods and services that can be produced

38. Scarcity requires choice • People must choose which of their desires they will satisfy and which they will leave unsatisfied. • When we, either as individuals or as a society, choose more of something, scarcity forces us to take less of something else.

39. New definition depends on Scarcity & Choice • Economics is sometimes called as: • “The study of scarcity” because economic activity would not exist if scarcity did not force people to make choices.

40. Scarcity, Choice, and Opportunity Cost • Human wants are unlimited, but resources are not. • Three basic questions must be answered in order to understand an economic system: • What gets produced? • How is it produced? • Who gets what is produced?

41. Scarcity, Choice, and Opport. Cost

42. Scarcity and socoety • Every society has some system or mechanism that transforms that society’s scarce resources into useful goods and services.

43. Scarcity, Choice, and Opportunity Cost • Capital refers to the things that are themselves produced and then used to produce other goods and services. • The basic resources that are available to a society are factors of production: • Land • Labor • Capital

44. Scarcity, Choice, and Opportunity Cost • Production is the process that transforms scarce resources into useful goods and services. • Resources or factors of production are the inputs into the process of production; goods and services of value to households are the outputs of the process of production.

45. Scarcity and Choicein a One-Person Economy • Nearly all the basic decisions that characterize complex economies must also be made in a single-person economy. • Constrained choice and scarcity are the basic concepts that apply to every society.

46. Scarcity and Choicein a One-Person Economy • Opportunity cost is that which we give up or forgo, when we make a decision or a choice.

47. Scarcity and Choicein an Economy of Two or More • A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources.

48. Scarcity and Choicein an Economy of Two or More • A producer has a comparative advantage in the production of a good or service over another if it can produce that product at a lower opportunity cost.

49. Basic problems of economic organization Or basic three questions

50. The three problems of economics • What commodities are produced and what quantities? • How are goods produced? • For whom are goods produced?