1 / 31

Economics 100A

Economics 100A. Intermediate Microeconomics Dr. Julie Gonzalez. Chapter 1. Preliminaries. Themes of Microeconomics. Microeconomics deals with limits Limited budgets Limited time Limited ability to produce How do we make the most of limits? How do we allocate scarce resources?.

todd-riggs
Download Presentation

Economics 100A

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Economics 100A Intermediate Microeconomics Dr. Julie Gonzalez

  2. Chapter 1 Preliminaries

  3. Themes of Microeconomics • Microeconomics deals with limits • Limited budgets • Limited time • Limited ability to produce • How do we make the most of limits? • How do we allocate scarce resources? Chapter 1

  4. Themes of Microeconomics • Workers, firms and consumers must make trade-offs • Do I work or go on vacation? • Do I purchase a new car or save my money? • Do we hire more workers or buy new machinery? • How are these trade-offs best made? Chapter 1

  5. Themes of Microeconomics • Consumers • Limited incomes • Consumer theory – describes how consumers maximize their well-being, using their preferences, to make decisions about trade-offs • How do consumers make decisions about consumption and savings? Chapter 1

  6. Themes of Microeconomics • Workers • Individuals decide when and if to enter the workforce • Trade-offs of working now or obtaining more education/training • How many hours do individuals choose to work? • Trade-off of labor and leisure Chapter 1

  7. Themes of Microeconomics • Firms • What types of products do firms produce? • Constraints on production capacity and financial resources create needs for trade-offs • Theory of the Firm – describes how these trade-offs are best made Chapter 1

  8. Themes of Microeconomics • Prices • Trade-offs are often based on prices faced by consumers and producers • Workers make decisions based on prices for labor – wages • Firms make decisions based on wages and prices for inputs and on prices for the goods they produce Chapter 1

  9. Themes of Microeconomics • Prices • How are prices determined? • Centrally planned economies – governments control prices • Market economies – prices determined by interaction of market participants • Markets – collection of buyers and sellers whose interaction determines the prices of goods Chapter 1

  10. Theories and Models • Economics is concerned with explanation of observed phenomena • Theories are used to explain observed phenomena in terms of a set of basic rules and assumptions: • The Theory of the Firm • The Theory of Consumer Behavior Chapter 1

  11. Theories and Models • Theories are used to make predictions • Economic models are created from theories • Models are mathematical representations used to make quantitative predictions Chapter 1

  12. Theories and Models • Validating a Theory • The validity of a theory is determined by the quality of its prediction, given the assumptions • Theories must be tested and refined • Theories are invariably imperfect – but gives much insight into observed phenomena Chapter 1

  13. Positive & Normative Analysis • Positive Analysis – statements that describe the relationship of cause and effect • Questions that deal with explanation and prediction • What will be the impact of an import quota on foreign cars? • What will be the impact of an increase in the gasoline excise tax? Chapter 1

  14. Positive & Normative Analysis • Normative Analysis – analysis examining questions of what ought to be • Often supplemented by value judgments • Should the government impose a larger gasoline tax? • Should the government decrease the tariffs on imported cars? Chapter 1

  15. What is a Market? • Markets • Collection of buyers and sellers, through their actual or potential interaction, determine the prices of products • Buyers: consumers purchase goods, companies purchase labor and inputs • Sellers: consumers sell labor, resource owners sell inputs, firms sell goods Chapter 1

  16. Types of Markets • Perfectly competitive markets • Because of the large number of buyers and sellers, no individual buyer or seller can influence the price • Example: Most agricultural markets • Fierce competition among firms can create a competitive market Chapter 1

  17. Types of Markets • Noncompetitive Markets • Markets where individual producers can influence the price • Cartels – groups of producers who act collectively • Example: OPEC dominates with world oil market Chapter 1

  18. Market Price • Transactions between buyers and sellers are exchanges of goods for a certain price • Market price – price prevailing in a competitive market • Some markets have one price: price of gold • Some markets have more than one price: price of Tide versus Wisk Chapter 1

  19. Market Definition • Market Definition • Which buyers and sellers should be included in a given market? • This depends on the extent of the market – boundaries, geographical and by range of products, to be included in it • Market for housing in New York or Indianapolis • Market for all cameras or digital cameras Chapter 1

  20. Market Definition • Importance of market definition • In order to set price, make budgeting decisions, etc., companies must know • Their competitors • Product-characteristic and geographic boundaries of the market • Important for public policy decisions • Should government allow a merger between companies in same market? Chapter 1

  21. Real Versus Nominal Prices • Comparing prices across time requires measuring prices relative to some overall price level • Nominal price is the absolute or current dollar price of a good or service when it is sold • Real price is the price relative to an aggregate measure of prices or constant dollar price Chapter 1

  22. Real Versus Nominal Prices • Consumer Price Index (CPI) is often used as a measure of aggregate prices • Records the prices of a large market basket of goods purchased by a “typical” consumer over time • Percent changes in CPI measure the rate of inflation Chapter 1

  23. Real Versus Nominal Prices • Calculating Real Prices Chapter 1

  24. Real Price of College Chapter 1

  25. Real Price of Wages • Observations • The minimum wage has been increasing in nominal terms since 1940 • From 1930 at $0.25 to 2003 at $5.15 • The 1999 real minimum wage was no higher in 1999 than 1950 Chapter 1

  26. The Minimum Wage: Figure 1.1 Chapter 1

  27. Why Study Microeconomics? • Microeconomic concepts are used by everyone to assist them in making choices as consumers and producers • Examples show the numerous levels of microeconomic questions necessary in many decisions Chapter 1

  28. Ford SUV’s • Built Ford Explorer in 1991, Ford Expedition in 1997 and Ford Excursion in 1999 • In each of these cases, Ford had to consider many aspects of the economy to ensure their introduction was a sound investment Chapter 1

  29. Ford SUV’s • Questions • How strong is demand and how quickly will it grow? • Must understand consumer preferences and trade-offs • What are the costs of manufacturing? • Given all costs of production, how many should be produced each year? Chapter 1

  30. Ford SUV’s • Questions (cont.) • Ford had to develop pricing strategy and determine competitors’ reactions • Risk analysis • Uncertainty of future prices: gas, wages • Government regulation • Emissions standards Chapter 1

  31. Emission Standards • 1970 Clean Air Act imposed emissions standards and have become increasingly stringent • Questions: • What are the impacts on consumers? • What are the impacts on producers? • How should the standards be enforced? • What are the benefits and costs? Chapter 1

More Related