Principles of Microeconomics Welcome to PACE Econ 1 Principles of Microeconomics

Index Card Front-side (lined) Back-side ECON 1/T 6:00pm Name (Underline what you go by) Phone number Email (Print Clearly) Major/option Hobbies Favorite book Back-side Occupation, if currently working Your expectations 6 years from now Any message you want to give me

Instructional Information 9 hour / Week Course of Study Path to Success Read chapters before Discussion session Download and review Classnotes & Powerpoints (Bring to Class) Discussion sessions: The Conversation Definitions: Flash Cards Topical Reviews

ECONOMICS Economics is a Science that analyzes how Individuals behave, in a world of Scarcity.

Science is Objective or Positive Positive: Describes what is or will be Objective Factual Testable Descriptive Normative: Describes what should or ought to be Subjective Contains a value judgement Opinion

Construction of Theory Abstractions Definitions

Definitions: Words to describe reality Children learn words in pairs ( in ) ( out ) ( up ) ( down ) ( left ) ( right ) ( Hot ) ( Cold ) Alternative perspective: The world exists in a continuum

Definitions break up the continuum into parts Red Yellow Blue Orange Green Red Orange Yellow Green Blue Indigo Violet

Economic Analysis Looks at small degrees of Change Marginal: Additional: One more… Marginal Value: Additional Value of having one more Marginal Revenue: Additional revenue from one more. Marginal Cost: Additional cost of one more

Construction of Theory Abstractions Definitions Assumptions Implications Adoption of Theory

A Good Is Anything, That an Individual Wants to Have More Of, at Zero Price. Anything : Material or Non-material An individual wants Have More of At Zero Price

Resource: Anything that can be used to produce Goods. Land = all its attributes Labor = People Capital = Buildings & Equipment

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.

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.

Primary Social Goal = Fairness Violence: not fair. Social political: not fair. Economic: not fair, Life is NOT FAIR !! But, the market offers the broadest and most fair system

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

Circular Flow Diagram of the Exchange Economy   Goods & Services Product Markets Goods & Services $'s $'s Revenue HOUSEHOLD   FIRMS $'s $'s Income Inputs Resources   Resource Markets 20

Circular Flow Diagram of the Exchange Economy 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

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.