EC 101.01
Principles of Microeconomics
Instructor: Pınar ERTÖR
Email: pinar.ertor@boun.edu.tr
Office: NB 208A
Office hours: TBA
Textbook (required)
Microeconomics in Context
2nd Edition
Student Study Guide for the
book:
http://www.ase.tufts.edu/gdae/
pubs/te/mic/mic_2e_study_gu
ide_complete.pdf
Other interesting sources
İktisat nedir?
Emrah Aydınonat
İletişim Yayınları
Other interesting sources
Herkes için iktisat
Jim Standford
Yordam Kitap
Other interesting sources
Görünmeyen ekonomist
Tim Harford
Pegasus Yayınları
Other interesting sources
Contending Economic
Theories:
Neoclassical, Keynesian, and
Marxian
Richard D. Wolff and Stephen A.
Resnick
http://digamo.free.fr/wolffresnick12.pdf
Grading
• Midterm
• Announced quizzes
• Final
30%
20%
50%
!! This might be useful !!
Print the slides before coming to each lecture so that
you can take notes on the printed slides during the
lecture!
This makes studying for the exam so much more
easier!!
The slides will be here: www.econ.boun.edu.tr
Lecture 1:
Economic Activity in Context
What is economics?
The study of the way people organize
themselves to sustain life and enhance its
quality
What is economics for?
(Goals of economic activity)
• Positive questions: questions about how
things are
• Normative questions: questions about how
things should be
What is economics for?
(Goals of economic activity)
• Final goals: goals that require no further
justification; it is an end in itself
• Intermediate goals: goals that are desirable
because its achievement will bring you
closer to final goals
What is economics for?
(Goals of economic activity)
• Wealth: Value of all material assets owned
by an individual
• Efficiency: the use of resources in a way
that does not involve any waste
What is economics for?
(Goals of economic activity)
• Well-being: a shorthand term for the broad goal
of promoting the sustenance and flourishing of life
• Utility: A single concept thought to
cover all possible final goals; anything
that people might desire
A list of possible final goals
A Sample List of Final Goals
(a) Satisfaction of basic physical needs, such as for bodily survival, growth, health,
procreation, security, rest, and comfort.
(b) Happiness, including feelings of contentment, pleasure, self-respect, and peace of
mind.
(c) Realization of one’s potential, including opportunities for physical, intellectual,
moral, social, and spiritual striving and development.
(d) Fairness in the distribution of life possibilities. Individuals and cultures differ in how
they assess the “fair share” of society’s resources and opportunities for each person, but
the goal of fairness is universal.
(e) Freedom in economic and social relations. This means permitting individuals to make
as many small and large life choices for themselves as are possible within the limits of
responsible relations with others (and within the limits of their decision-making capacity,
as in the case of children).
(f) Participation in social decision making. Individuals should have the opportunity to
participate in the processes in which decisions are made that affect the members of
society as a collectivity and thereby define and regulate the society.
(g) A sense of meaning in one’s life; a reason or purpose for one’s efforts.
(h) Good social relations, including satisfying and trustful relations with intimates,
friends, family, business associates, and fellow citizens, along with respectful and
peaceful relations among nations.
(i) Ecological balance, such that natural resources and the natural environment are
sustained over the long run, for the well-being of present and future generations.
Unintended consequences of
economic activity
• Negative externalities
Harmful side effects of economic activity
that affect persons or entities (such as environment)
that are not among the economic actors directly
responsible for this activity
• Positive externalities
Beneficial side effects of economic activity that accrue largely to
persons or entities that are not among the economic actors directly
responsible for this activity
What is economics about?
4 essential economic activities
1. Resource maintenance
Management of natural, manufactured, human, and
social resources in such a way that their productivity
is sustained
2. Production
Conversion of some of these resources into usable
products (into goods and services)
What is economics about?
4 essential economic activities
3. Distribution
Sharing of products and resources among people
– Exchange: the trading of one thing for another
– Transfer: the giving of something, with
nothing specific expected in return
4. Consumption
The final use of a good or service
3 basic economic questions
• What should be produced, and what should
be maintained?
• How should production and maintenance be
accomplished?
• For whom should economic activity be
undertaken?
Economic Tradeoffs
• Abundance: resources are abundant to the
extent that they exist in plentiful supply for
meeting various goals
• Scarcity: resources are scarce to the extent
that they are not sufficient to allow all goals
to be accomplished at once
Society’s production
possibilities frontier
(PPF)
PPF
A curve showing the
maximum amounts
of 2 outputs that society
could produce from
given resources, over a
given time period
Quantity of Butter
Assumptions:
-
B
C
PPF
D
A
Quantity of Butter
Opportunity cost:
The value of the
best alternative
that is foregone
when a choice is
made
B
C
D
A
Quantity of Output 1
B
C
D
A
Quantity of Resource-Depleting Production
3 spheres of economic activity
• Core sphere: households, families,
communities
• Public purpose sphere: governments and
their agencies, as well as non-profit
organizations
• Business sphere: firms that produce goods
and services for profitable sale
Core sphere
• Some activities in this sphere are not recorded in
GDP (gross domestic product) statistics although
they are critical for human well-being (such as
domestic housework, child care, care for elderly)
• There are limits to what can be accomplished in
the small-scale, largely informal core sphere,
hence, the public purpose sphere needed.
Public purpose sphere
• These institutions exist for an explicit
purpose related to the public good
• However, their definitions of public good
may differ.
• Public purpose sphere is able to provide
goods and services that cannot, or would
not, be well provided by core sphere
institutions and businesses alone.
Public purpose sphere
• Public goods
Goods for which
1. use by one person does not diminish usefulness to
others, and
2. it would be difficult to exclude anyone from benefiting
• Free riders
People who would like to enjoy the benefit of a public
good without paying for it.
Business sphere
• Firms may not always aim for the highest
profit:
1. They may prefer to take social and ethical
concerns into consideration instead of mindless
profiteering
2. Sometimes top officers and managers may act, for
example, not in the profit making interest of the
owners but according to their personal selfinterest.
Business sphere
• Business interests may or may not coincide
with overall social well-being:
- They might not take negative externalities or positive
externalities into account.
- The potential for social harm grows when firms gain
excessive market power, i.e. when they come to
dominate the market in their area.
Microeconomics vs.
Macroeconomics
• Microeconomics
The sub-field of general economics that focuses on
activities that take place within and among the major
economic organizations of a society
• Macroeconomics
The sub-field of general economics that focuses on the
economy as a whole
What is a model?
• Definition: an analytical tool that highlights
some aspects of reality while ignoring
others
• Examples: a story, an image, a figure, a
graph, a set of equations
Neoclassical (traditional) model
A simple, mechanical model that portrays the
economy as a collection of profit-maximizing
firms and utility-maximizing households
interacting through perfectly competitive
markets
(As opposed to other models that we will discuss
briefly later on, such as Marxism, Keynesian, etc.)
Physical Context
Social Context
Economic Activity
Natural Inputs
(flows of natural
resources and environmental services)
Core
Sphere
Business
Sphere
Outputs
(pollution and
wastes)
Public
Purpose
Sphere
Now let’s watch:
Story of Solutions
https://www.youtube.com/watch?v=cpkRvc-sOKk