C:\fakepath\chapter one basics of micro economics
- 1. Economics- The world Around you
- 2. EXAMPLES OF SOME ECONOMIC DECISIONS Whether to buy a car this week. Whether to have pizza for dinner tonight, or something else. How hard to study for this course. Whether to go to college, and if so, which one. Whether to buy a Ticket for the movie. slide
- 3. Definition of Economics Economics is the study of how scarce resources are allocated among unlimited wants. To understand this definition, we must examine the concepts of scarcity , and economic choice
- 4. Human Nature and Reality People have unlimited wants . People have limited resources to acquire the things they want. As a result, they must make choices . Choices involve pursuing some things while forgoing others.
- 5. Scarcity, Goods and Bads An item that costs something is called scarce . Anything with a price on it is called an economic good —these include goods and services . A free good is a good for which there is no scarcity. An economic bad is anything you want to get rid of (pollution, disease, garbage)
- 6. Clarifying Concepts Scarcity means that not enough is available for free. A shortage occurs when not enough is available at the current price. A shortage is a problem of price . Poverty occurs when the goods are scarce, and those who need them do not have the income to obtain them. Poverty is a problem of income .
- 7. Goods to Produce Goods Resources are the elements needed to produce goods. Resources are also called factors of production inputs They are: Land (includes natural resources) Labor (physical and intellectual services of people) Capital (plant, machinery, equipment used in production)
- 8. Resources in Production Producers of Goods Resource Suppliers land labor capital rent wages interest
- 9. Scarcity and Choice Scarcity necessitates making choices . Economics is the study of how people choose to use their resources in attempts to satisfy their unlimited wants.
- 10. Positive vs. Normative Economics Positive Economics Focuses on “what is”. Analyzes actual, measurable outcomes. Does not impose value judgments, person feelings or convictions. Positive economics is economics as a science. Normative Economics Focuses on what someone thinks “ought to be” or “should be” . Makes ethical judgments—value judgments.
- 11. Common Analytical Mistakes (Logical Fallacies) Fallacy of Composition The mistaken assumption that what is true of a part is also true of the whole. Association is not Causation The mistaken assumption that because two events occur together, one must cause the other. Also given as “correlation is not causation”. Violation of Ceteris Paribus Ceteris Paribus: Latin for “all else equal”. This occurs when one attempts to analyze the effect of one thing while holding everything else constant, when in fact other things have changed.
- 12. Micro vs. Macro Microeconomics Studies the economy at the level of individual consumers, workers, firms, goods, and markets Macroeconomics Studies the economy at the aggregate level, at the level of the economy as a whole. Examines total consumer behavior, total employment, total production, total sales, etc.
- 13. Micro Economics Definition - Studying a part of economy, a unit or particular, specific aspects Characteristics: Study of individual Determination of individual prices Small variables Immediate disposal of the problem Immediate decisions are possible
- 14. Need and Significance Essential for understanding total economic system Helpful in- solving of economic problems Deciding economic policy Economic decision of individual unit Enquiring about economic welfare Scope: Theory of Product Pricing Theory of Factor Pricing Theory of economic welfare
- 15. Limitation: Study of industrial units only Unrealistic assumption Study of a part of economy only Few specific problems only Limited study of economic problems Macro Economics: Studying aggregates Study of whole economy system Study of total
Editor's Notes
- #7: Absence of poverty implies some basic level of need has been met. An absence of scarcity would imply that all of our desires for goods are fully satisfied. We may someday eliminate poverty, but scarcity will always be with us.