🗊Презентация Introduction in Microeconomics

Introduction in Microeconomics Prof. Zharova L. zharova_l@ua.fm

Structure of the course 13 Modules Midterm Exam(100) / Final Exam (200) Participation / tests 3 Quizzes Individual assignment (topics on Moodle) Start: Feb. 23rd / PPT 15 min Group assignment (3-5 people) Deadline: April 10th / PPT 15 min

Economics in news 2008 seemed to be the year of economic news. From the worst financial crisis since the Great Depression to the possibility of a global recession, to gyrating gasoline and food prices, and to plunging housing prices, economic questions were the primary factors in the presidential campaign of 2008 and dominated the news generally. News interpreted through economic consequences or background. Economics is defined less by the subjects economists investigate than by the way in which economists investigate them. Economists have a way of looking at the world that differs from the way scholars in other disciplines look at the world. It is the economic way of thinking

scarcity Our resources are LIMITED. At any one time, we have only so much land, so many factories, so much oil, so many people. But our wants, our desires for the things that we can produce with those resources, are unlimited. We would always like more and better housing, more and better education— more and better of practically everything. Virtually everything is scarce. A FREE GOOD is one for which the choice of one use does not require that we give up another

Scarcity and the Fundamental Economic Questions What should be produced? How should goods and services be produced? For whom should goods and services be produced?

Opportunity cost OPPORTUNITY COST is the value of the best alternative forgone in making any choice. (1) The concept of opportunity cost must not be confused with the purchase price of an item. The essential thing to see in the concept of opportunity cost is found in the name of the concept. Opportunity cost is the value of the best opportunity forgone in a particular choice. It is not simply the amount spent on that choice.

Summary Economics is a social science that examines how people choose among the alternatives available to them. Scarcity implies that we must give up one alternative in selecting another. A good that is not scarce is a free good. The three fundamental economic questions are: What should be produced? How should goods and services be produced? For whom should goods and services be produced? Every choice has an opportunity cost and opportunity costs affect the choices people make. The opportunity cost of any choice is the value of the best alternative that had to be forgone in making that choice.

10 principles of economics People face trade-offs (between efficiency and equity) The cost of something is what you give up to get it Rational people think at the margin People respond to incentives Trade can make everyone better off Markets are usually a good way to organize economic activity Governments can sometimes improve market outcomes A country's standard of living depends on its ability to produce goods and services Prices rise when the government prints too much money Society faces a short-run tradeoff between Inflation and unemployment.

Macroeconomics and Microeconomics Macroeconomics is the branch of economics that focuses on the impact of choices on the total, or aggregate, level of economic activity. What is happening to the unemployment rate? Other questions that deal with aggregates, or totals, in the economy. The question about the level of economic activity, for example, refers to the total value of all goods and services produced in the economy. Inflation is a measure of the rate of change in the average price level for the entire economy; it is a macroeconomic problem. Microeconomics is the branch of economics that focuses on the choices made by individual decision-making units in the economy – typically consumers and firms – and the impacts those choices have on individual markets. Why do tickets to the best concerts cost so much? How does the threat of global warming affect real estate prices in coastal areas? Why do women end up doing most of the housework? Why do senior citizens get discounts on public transit systems?

The economists toolkit In the scientific method, hypotheses are suggested and then tested. A HYPOTHESIS is an assertion of a relationship between two or more variables that could be proven to be false. A statement is not a hypothesis if no conceivable test could show it to be false. The statement “Plants like sunshine” is not a hypothesis; The statement “Increased solar radiation increases the rate of plant growth” is a hypothesis; The All-Other-Things-Unchanged Problem (ceteris paribus) Models are important (All scientific thought involves simplifications of reality) The Fallacy of False Cause Hypotheses in economics typically specify a relationship in which a change in one variable (independent) causes another (dependent) to change. Sometimes the fact that two variables move together can suggest the false conclusion that one of the variables has acted as an independent variable that has caused the change we observe in the dependent variable Reaching the incorrect conclusion that one event causes another because the two events tend to occur together is called the FALLACY OF FALSE CAUSE. Normative and positive statements A statement of fact or a hypothesis is a POSITIVE STATEMENT A NORMATIVE STATEMENT is one that makes a value judgment. Such a judgment is the opinion of the speaker; no one can “prove” that the statement is or is not correct.

Summarizing Economists try to employ the scientific method in their research. Scientists cannot prove a hypothesis to be true; they can only fail to prove it false. Economists, like other social scientists and scientists, use models to assist them in their analyses. Two problems inherent in tests of hypotheses in economics are the all-other-things-unchanged problem and the fallacy of false cause. Positive statements are factual and can be tested. Normative statements are value judgments that cannot be tested. Many of the disagreements among economists stem from differences in values.