Welcome to ECON 308 Managerial Economics

Index Cards: Front Index Cards: Front ECON 308 F09/TR 12:30)ECON 308 F09/TR 12:30) Name: (underline what you go by)Name: (underline what you go by) (the one you read) (the one you read) Phone:Phone: Major:Major: Source of News:Source of News: Favorite Book: Fiction or NonFavorite Book: Fiction or Non

Index Card: Back Most recent Job: Describe activitiesMost recent Job: Describe activities Expectations 6 years from nowExpectations 6 years from now Message to ME (ADDS = Your Story)Message to ME (ADDS = Your Story)

ECONOMICS Economics Is a Science That Analyzes How Individuals Behave, in a World of Scarcity.

Construction of Theory AbstractionsAbstractions DefinitionsDefinitions

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 Red Yellow Blue Orange Green Orange Green Red Orange Yellow Green Blue Indigo Violet Red Orange Yellow Green Blue Indigo Violet

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

Construction of Theory AbstractionsAbstractions DefinitionsDefinitions AssumptionsAssumptions ImplicationsImplications Adoption of TheoryAdoption of Theory

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

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

Assumptions Humankind has unlimited wantsHumankind has unlimited wants Our resources are limitedOur resources are limited Scarcity : Individually, and as a Society, we do not have enough resources to produce all the things we want.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.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.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 resourcesCompetition: We are in a state of competition for the use of resources

Forms of Competition in Society Violence, or Threat of ViolenceViolence, or Threat of Violence Social/Political : competition on the basis of some limited behavior or characteristicSocial/Political : competition on the basis of some limited behavior or characteristic Economic/Market: competition based on offering the highest value in exchange.Economic/Market: competition based on offering the highest value in exchange.

Primary Social Goal = Fairness Violence: not fair.Violence: not fair. Social political: not fair.Social political: not fair. Economic: not fair,Economic: not fair, Life is 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.Microeconomics: decisions of individuals and firms: what to buy and what to produce. Macroeconomics: the whole economic system and the role of government.Macroeconomics: the whole economic system and the role of government.

Mechanisms of Choice Political: our representatives make choicesPolitical: our representatives make choices Economic/market: individuals and firms make choices based on relative prices about what to produceEconomic/market: individuals and firms make choices based on relative prices about what to produce

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

Households: Decisions: What to sell? What to buy? Assume Maximize UtilityHouseholds: Decisions: What to sell? What to buy? Assume Maximize Utility Firms: Decisions: What inputs to use? What to produce? Assume Maximize Profits.Firms: Decisions: What inputs to use? What to produce? Assume Maximize Profits. Markets: Factor Markets, Product MarketsMarkets: 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.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.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.For whom to produce? Who will get to consume the goods produced.