Transcript ECO285 - Macroeconomics

ECO284 –
Microeconomics
Assumptions
Build Models
Generate Conclusions/Predictions
Dr. Dennis Foster
Compare to
the real world
Introduction
Price
Q
Supply
B
Q =f(K,L)
A
Pe
Demand
K
Qe
Quantity
ECO284 - Microeconomics

A framework for understanding. . .
Scarcity
Choices
(Opportunity) Costs
Limited Resources
Unlimited Wants
Premise: Rational self-interest
Choices there’s no way around them.

What will be produced?
Allocative efficiency

How will it be produced?
Productive efficiency

Who will get what is produced?
Distributive efficiency
Efficiency the measure of how well we
answer these questions.
Opportunity Costs





Making tradeoffs
Weighing costs and benefits
The value of the next best choice:
Attending class . . .
Every person/group/society makes choices.
TANSTAAFL – look it up.
Economic methods

Theories & models of behavior:
Assumptions
Build Models
Generate Conclusions/Predictions
Compare to
the real world
Economic methods

Ceteris paribus assumption.

Decisions made at the margin.

Decisions are made by weighing
benefits and costs.

Theories cannot be proved.

Beware of “logical fallacies.”
– e.g. post hoc, non sequitor, anecdotes
Graphing

A picture is worth a thousand words . . .
Q
A
B
Q = f(K,L)
K
Graphing
When x is:
1. the number of days in a week
2. amount of apples people want to buy
3. (In a world with only 2 goods) amount
of films we can produce
4. amount of insulin people want to buy
5. amount of workers employed
6. amount of white Ford Taurus’
people want to buy
7. number of U.S. Senate seats
and y is:
price of apples
price of apples
amount of wheat
we can produce
price of insulin
amount of hamburgers
produced per hour at the
Burger King.
price of white
Ford Taurus’
number of days in the week
ECO284 –
Microeconomics
Assumptions
Build Models
Generate Conclusions/Predictions
Dr. Dennis Foster
Compare to
the real world
Introduction
Price
Q
Supply
B
Q =f(K,L)
A
Pe
Demand
K
Qe
Quantity
ECO284 - Microeconomics
“Economics is the study of
mankind in the ordinary
business of life.”
--Alfred Marshall