Transcript Unit 1 Lesson 1 Introduction Supply and Demand

Microeconomics
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Microeconomics
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