ESSENTIALS OF MICROECONOMICS
ECONOMICS 201
How can you find…or avoid me??
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Where am I?
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How to contact me…
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BDC 230
664-2026 or jvangilder@csub.edu
www.csub.edu/~jvangilder
Office Hours…
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MW 12:00 pm – 2:00 pm
F 1:00 pm – 2:00 pm
By appointment
What is Microeconomics?
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Two parts:
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Study of the behavior of the individual
Study of the behavior of the firm
What type of Behavior?
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Consumer
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Buying and working
Firm

Producing and selling
What are some major
changes in the economy
that have happened in the
last six months?
Objectives
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Role of prices
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Why do we have prices?
How are prices determined?
Who determines prices?
Supply and Demand
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What are they?
How do we draw them?
What changes each?
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Competitive markets
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Differing market Characteristics
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What makes us competitive?
Sports…football vs. tennis
Control over prices
Number of firms/customers
Analyze real-life situations
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Why
Why
Why
Why
did the minimum wage change?
are gas prices increasing again?
do businesses have sales?
do doctor visits cost so much?
Textbook
Microeconomics
7th edition
Roger Arnold
Attendance Policy
Two phrases to live by:
I.
If you don’t want to be here…we
don’t want you here
II.
If you don’t plan on staying the
entire time…don’t come
Homework
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
Due at the BEGINNING of class
following the assigned questions
Homework review sessions



Students do problems
Answer need not be correct to receive
credit
Grading of homework…What is your
number?

Don’t forget it…your grade depends on
it
Exams and Quizzes
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Midterm
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Quiz 1
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Friday January 20th
Quiz 2
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Monday February 6th
Friday February 24th
Final
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Section 03
 Friday March 17th 8:00am - 10:30am
Section 04
 Wednesday March 15th 2:00pm – 4:30pm
Grade Breakdown
Midterm = 25%
Cumulative Final = 30%
 Quizzes= 20%
 Homework = 15%
 Participation = 10%
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Other Stuff…
Academic Dishonesty
Classroom Conduct
Disabilities
Chapter 1
What is Economics
About
Definition of Economics
SCIENCE of how individuals and
societies deal with the fact that
wants are greater than resources
available to satisfy those wants
Scarcity
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
Wants are greater than the resources
available to fill those wants
What do you have scarcity of???

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
Money
Time
What do firms have scarcity of???

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Labor
Land
Capital
Thus….
Economics is the
SCIENCE of SCARCITY
Normative vs. Positive Economics
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Normative
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What “ought” to be
Positive

What is
Examples: Positive or Normative?
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The government fought inflation during
the early 1980s because it felt the
inflation was damaging potential longterm economic growth.
The government should cut taxes in order
to stimulate consumption.
Increases in consumer spending improved
the Japanese economy last year.
Balancing the federal budget would be
good for the economy.
Micro vs. Macro

Microeconomics


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Study of human behavior and choice
Looks at SMALL units (individual,
market, single firm)
Macroeconomics


Study of human behavior and choices
Looks at LARGE units (aggregated
markets, whole economy)
Economic Way of Thinking
 Watch

“An economist is someone that sees
something working in practice and
asks if it would would in principle”
 Think
 Identify
Why Study Economics?
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Social Problems

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
Understand why things happen

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Discrimination
Crime
Coupons
Minimum Wage
Understand the Political Process
Homework #1
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
Chapter 1
Questions 1 and 2
Beginning to Think Like an
Economist
…is this a good thing?
Defining Economic Goods

Utility

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Tangibility
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Satisfaction you receive from consuming a
product
Good vs. Bad
Can the good be touched or is it a service?
Resources or factors of production used


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Land: natural resources
Labor: Physical and mental talents of people
Capital: produced goods that can be used as
inputs for further production
Entrepreneurship: talent of organizing
resources, seeking new opportunities, and
developing new ways of doing things
Remember Scarcity Runs the
Show…
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
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What was scarcity??
So…how do we make sure that only
those who REALLY need the good
get it??
Prices


System of rationing of the good
Cause people to compete for the item
Opportunity Cost


Value of the next best alternative
foregone
Pizza vs CD
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Revolutionary War
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The British and their red coats
Big Macs
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Pizza for $1.00 per slice; CD for $15.00
Big Macs in Japan cost $8.25
Highway System

Paid for with taxes
Summary Statement of Scarcity
and Related Concepts
Costs and Benefits at the Margin

What is the margin??


Marginal Cost


The cost of the “last” unit employed
Marginal Benefits

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The “last” or “additional”
The benefit of the “last” unit employed
Unintended effects



Minimum wage
Gun bounties
Seat belts
Efficiency

What is the “right amount” of time
to study?


Right amount = optimal or efficient
amount
Marginal Costs = Marginal Benefits
Economic way of thinking
includes…




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Analyzing scarcity
Look at opportunity cost of
decisions
Measure costs and benefits
Look at marginal effects
Examine unintended effects
Economic Thinking Errors
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Association vs. Causation
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Fallacy of Composition


You hit red lights because you are
running late
Don’t study for a test so you fail
What is good for the individual is good
for the group
Forgetting Ceteris Paribus

All else remains constant
What is this?
Model

Simplified version of reality


Includes only the “important” aspects
Why is a model necessary??
Parts of a Theory


Magnitudes that can change
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
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Variables
Assumptions
Ideas about event that will not allow to
change
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Hypothesis
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Educated guess
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Predictions
Based on hypothesis and assumptions
Scientific Approach
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What do you want to
predict/explain?
What variables are important?
State assumptions
State hypothesis
Test
If results are good…Yeah You!!
If results are bad…amend or reject
theory
Building and Testing a Theory
Evidence supports the
theory. No further action is
necessary, although it is a
good idea to continue to
examine the theory closely.
Decide on what
it is you want to
explain or
predict.
Identify the
variables that
you believe are
important to
what you want
to explain or
predict.
State the
assumptions of
the theory.
State the
hypothesis.
Test the theory
by comparing
its predictions
against realworld events.
Either
Or
Return
Evidence rejects the theory, so
either formulate a new theory,
or amend the old theory in terms
of its variables, assumptions,
and hypotheses.
How do we judge theories?


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Look at how well they predict
NOT by the assumptions
Example: Firms try to maximize
profits



Do they think about this every second?
Probably not
Over the course of the year…make
decisions to maximize profits
Appendix A
Working with Diagrams
Types of Relationships between
variables
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Direct


Inverse
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Positive
Negative
No Relationship

Variables are independent
Two-Variable Diagram Representing an
Inverse Relationship
The variables price
and quantity
demanded are
inversely related.
Price of CDs ($)
20
18
16
A
B
C
D
14
12
0
E
Demand for CDs
100 120 140 160 180
Quantity Demanded of CDs
Two-Variable Diagram Representing a
Direct Relationship
Consumption ($)
360
F
300
E
240
D
180
C
120
60
0
B
The variables
income and
consumption are
directly related.
A
100 200 300 400 500
Income ($)
Two Diagrams Representing Independence
between Two Variables
Y
Variables X and Y are
independent (neither variable
is related to the other).
Variables X and Y
are independent.
Y
40
40
D
30
30
C
20
20
B
10
10
A
A
0
10
B
20
(a)
C
30
D
40
X
0
10
20
30
40
(b)
X
Slope

Used to see how a variable changes
in response to another variable
changing
Y
vertical
Slope 

X horizontal
To calculate slope

Find two points on any straight line
Y2  Y1
Y1  Y2
or
X 2  X1
X1  X 2
What sign do you expect the slope
to have?

Direct relationship


Inverse relationship
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
Positive
Negative
No Relationship

0 or infinity
Calculating Slopes
Y
Y
Y
–10
Slope=  =
= –1
X
10
(negative slope)
A
40
Y +10
=
= +2
X
+5
(positive
Slope =
D
40
Y
B
30
30
X
C
C
B
20
20
D
10
10
0
10
20
30
40
X
0
A
10 15 20
X
Calculating Slopes
Y
Y
40
A
B
C
20
Y
0
=
Slope =
=0
X
10
(zero slope)
10
0
10
20
(c)
30
40
D
30
C
20
B
10
A
D
30
40
X
0

Y
+10
=
=`
X
0
(infinite slope)
Slope =
X
10
20
30
40
(d)
The 45 Line
45 Line
Y
20
0
A
45
20
X
Homework
 Chapter
1
 Questions 4, 5, 7, 8
 Chapter
1 Appendix
 Questions
6, 7, 9
In-class exercise 1
Do we understand Chapter 1?
Appendix B
Should you major in
Economics??
Five myths about economics and an
economics major

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Economics is all mathematics and
statistics
Economics is only about inflation, interest
rates, unemployment, and other such
things
People become economists only if they
want to “make money”
Economics wasn’t very interesting in high
school, so it isn’t going to be interesting
now
Economics is a lot like business, but
business is more marketable