Welcome to ECON 160
Principles of Microeconomics
richard.tontz@csun.edu
http://www.csun.edu/~rlt50610/
Aplia Course Key: 5TS6-7CEH-MEVL
Econ 160
• The Economic System of Competition
Review: Definitions
• Good : is anything that an individual wants
to have more of, at zero price.
• Resource: Anything that can be used to
produce goods.
• Scarcity: A good is scarce if the amount
desired at zero price is more than the amount
available at zero price.
Review:Assumptions
• Humankind has unlimited wants
• Our resources are limited
• Scarcity : Individually, and as a Society,
we do not have enough resources to
produce all the things we want.
Review:Implications of Scarcity
• Choice: people must choose which goods
to acquire.
• Economic Cost: The Cost of any action, is
the personal value of the next highest
valued alternative given-up.
• Competition: We are in a state of
competition for the use of resources
Forms of Competition in Society
• Violence, or Threat of Violence
• Social/Political : competition on the basis
of some limited behavior or characteristic
• Economic/Market: competition based on
offering the highest value in exchange.
Scarcity  Society Choices
• What to produce? Goal find the mixture
of outputs that maximizes society’s value.
• How to produce? Goal: find the optimal
mix of inputs to maximize technical output.
• For whom to produce? Who will get to
consume the goods produced.
What Economics Is About
• Microeconomics: decisions of individuals
and firms: what to buy and what to
produce.
• Macroeconomics: the whole economic
system and the role of government.
Mechanisms of Choice
• Political: our representatives make choices
• Economic/market: individuals and firms
make choices based on relative prices
about what to produce
Ten Principles of Economics
• Individual decision making
• How people interact
• The economy as a whole
Individual Decision Making
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•
•
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People Face Trade-offs: Choice
Opportunity Cost
Rational people think at the margins
People respond to incentives
How People Interact
• Trade Makes everyone better off
• The market system organizes production
efficiently
• Markets outcomes can sometimes be
improved upon by Government
The Economic/Market
Form of Competition
Circular Flow Diagram of the Exchange Economy
Goods &
Services
Goods &
Services
Product
Markets
$'s
$'s Revenue
HOUSEHOLDS
FIRMS
$'s
$'s Income
Inputs
Resources
Resource
Markets
Economic Agents & Decision-making
• Households: Decisions: What to sell?
What to buy? Assume Maximize Utility
• Firms: Decisions: What inputs to use?
What to produce? Assume Maximize
Profits.
• Markets: Factor Markets, Product Markets
Role of Money: The medium of exchange
Definition of Money
• Currency in Circulation: Currency outside
of Banks in the hands of households,or
firms
• Checkable deposits in Banks, Savings &
Loans, Credit Unions
Assignments
• Check Aplia for Assignment due Sunday
Night
• Read Chapter 3
• Check for new Classnotes & Powerpoints