1. John Glenn College of Public Affairs Zhongnan Jiang
2017 Bootcamp
John Glenn College of Public Affairs
Zhongnan Jiang

2. Outline What is Economics?  Scarcity  Opportunity cost
 Macro vs. Micro
Individual decision making
 Marginal analysis
 Budget Line
Markets
 Supply and Demand, and Equilibrium
 Consumer & Producer Surplus
 Competitive market and market failure

3. What is Economics A study of how to allocate scarce resources
Note: scarcity means opportunity cost > zero

4. Opportunity cost
The value of the highest valued foregone alternative. Question: Someone gave you a diamond for free. What is the price? What is the opportunity cost? Price does not equal to opportunity cost!

5. Micro vs. Macro Macroeconomics The economy as a whole
Monetary / fiscal policy. e.g. what effect does interest rates have on whole economy?
Inflation, and unemployment
Economic Growth
International trade and globalization
Government borrowing

6. Microeconomics
Activities of individuals & markets, meaning:
How a market allocates resources
Individual decision-making

7. Focus on Microeconomics
Rationality assumption
1. Preferences
2. Utility maximizers.
3. Perfect information

8. Individual decision-making
Marginal analysis
Marginal cost VS. Marginal benefit
For producers, they compare marginal cost with marginal revenue.
For consumers, they compare marginal expenditure with marginal utility.
Producers/consumers will choose an option that marginal benefit exceeds marginal cost.
The law of diminishing marginal benefit

9. Budget Line What is a budget line? X-axis, Y-axis, and Slope
A change in income, then…
A change in prices, then…

10. Market
Demand curve
Schedule showing how much consumers are willing to pay for a good or service
Law of Demand
Supply curve
Schedule showing the cost of producing a good or service at each quantity
Equilibrium
Movement along the demand/supply curve (which is caused by changes in price) and movement of the demand/supply curve

11. Consumer surplus
The difference between what consumers are willing and what they actually do spend on the good or service.
Producer surplus
The difference between the amount a producer receives and the minimum amount the producer is willing to accept for the good.

12. Markets A space where buyers and sellers interact to set prices
Competitive Markets
Many Buyers & Sellers
Low Barriers to Entry or Exit
Perfect Information
Homogeneous Goods
Market Failures

13. Market failures and public policy
When markets fail, government intervention can restore efficiency
Government intervention in a well-functioning market is inefficient
In late 2013, the Venezuelan government nationalized a toilet paper factory in an attempt to combat a severe shortage.
Why was there a toilet paper shortage in the first place?
There was a price ceiling on TP, which created a deadweight loss
Examples from the US: Rent control