Micro Economics

1. Micro Economics Prof. Dr. Mohammed I. Migdad Professor of Economics 2018

2. The first semester September 2018

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 of economics. • The three problems of economic organization. • Positive and normative economics • 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. • Consumer equilibrium using indifference curves.

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, 2016, 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”. • The win win model as another way of thinking.

16. Good V Bad Model • What is the G V B model and how to understand it. • Why we did not accept it in analyzing economic issues. • What is the alternative analysis.

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 • The zero sum game • 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. Definition of economics • 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 ms as 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 and socoety • Every society has some system or mechanism that transforms that society’s scarce resources into useful goods and services.

38. 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

39. 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.

40. 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.

41. The three questions in economics • 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?

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

43. What commodities are produced and what quantities? • The society have to decide and determine how much of each goods will make and when they will be produced. • Will we produce pizzas or shirts today, few high quality shirts or many cheap shirts. • Or will we produce fewer consumer goods and more investment goods

44. How are goods produced? • The society have to determine who will produce with what resources and what techniques they will use. • Who farms and who teaches? • Is electricity generated from oil, from coal or from the sun? • Will factories be run by people or robots? • Will we use the labor intensive or capital intensive technique?

45. For whom are goods produced? • Who gets to eat the fruits of economic activates? • Is the distribution of income and wealth is fair and equitable? • How is the national product divided among different household? • Are many people poor and few rich? • Do high wages go to teachers or farmers? • Will society provide minimal consumption to the poor? Or must people work if they are to eat?

46. Economic problem • The economic problem: Given scarce resources, how, exactly, do large, complex societies go about answering the three basic economic questions? • To answer the three basic questions we need to study the economic systems.

47. Scarcity, Choice, and Opport. Cost

48. Branches of Economics Economics is usually divided into two main branches

49. Branches of Economics • Microeconomics examines the economic behavior of actors such as businesses, households, and individuals with a view to understand decision making in the face of scarcity and the allocation consequences of these decisions.

50. Branches of Economics • Macroeconomics examines an economy as a whole with a view to understanding the interaction between economic aggregates such as national income, employment , international trade, and inflation.