1. Introduction to Microeconomics

2. What is the economic problem?
Scarcity
: resources on earth are finite
but human wants are unlimited
Definitions of economics
Webster: a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services
Mankiw: the study of how society manages its scarce resources
Roberson: studies what rational people do when faced with choice

3. Why is most of the world capitalist today?
Capitalism
Markets determine what is produced, how it’s produced and who consumes the output using the market price
Business owners may succeed or fail
Limited role for government
to protect private ownership, to protect
citizens, and to build common infrastructure
Socialism
Planning role for government
Society ownership (no private property)
Why is most of the world capitalist today?
Socialism failed to provide entrepreneur and worker incentives

4. Mankiw’s first four principles
People face trade-offs
Our time is finite; you chose to spend this moment studying economics. What else could you have done: work, study for another class, go to the movies, sleep, play?
The cost of something is what you give up to get it
Given all your time alternatives suppose “working” is the most valued activity you had to forgo to study economics. Thus the “opportunity cost” of studying economics isn’t all the other choices; it’s only missing work.
Rational people think on the margin
Just before you decided to study economics you had many time alternatives. As a rational person you analyzed the cost-benefit of each choice and properly chose to spend the next moments, on the margin, studying economics.
People respond to incentives
Why are you in university study? For one of the most powerful incentives, to improve you finance position throughout your entire life.

5. Scientific Method Hypothesize Design and test
In both physical and social science researcher start with a hypothesis
Design and test
In the physical sciences “physics” researchers test the hypothesis under controlled lab experiments.
In the social sciences “economics” researchers don’t have the option to control the subject environment.
Economists use mathematical models derived by assumptions
models are a simplification of the real world
assumptions create the simplified world. Good assumptions will not impact the experiment outcome.

6. Microeconomics Macroeconomics What is?
the study of how households and firms make decisions and how they interact in markets (Mankiw)
microeconomics studies topics a business owner can change
Macroeconomics
the study of economy wide phenomena, including inflation, unemployment, and economic growth (Mankiw)
macroeconomics studies topics a business owner can’t change but must understand for planning
What is?
A householder buying food at the market:
microeconomics
A business planning to purchase a truck:
microeconomics
Ford planning to purchase a factory:
microeconomics
Ford planning to exit the auto industry :
microeconomics
The auto industry going away:
microeconomics

7. Positive Statement Normative Statement What is? Positive Analysis
Claims that attempt to describe the world as it is (objective view)
Normative Statement
Claims that attempt to prescribe how the would should be (subjective view)
What is?
Donald should be fired:
normative
Donald was fired:
positive
Unemployment is 9.5%:
positive
Unemployment of 9.5% is too high:
normative
Positive Analysis
attempts to be objective, the scientific method, by removing bias from the research and conclusions

8. Sometimes decision makers don’t listen to economists
Dr. Romer, Univ. of California at Berkeley
Examined if NFL teams punt too often
The conclusion was a resounding “Yes”
In fact NFL teams should “Never” punt (win more without punting)
Results were received and accepted by most all NFL coaches
Yet on Sunday, fourth and two, coaches continue to punt
Why?
Could there be another rational incentive to punt beyond trying to win the game?
Yes, at times a punt will not be successful, yielding better field position for an opponent.
This creates job risk for the coach often inconsistent with attempting to win the game.

9. Resources used in production
Land is the resource provided by nature.
Labor is the mental and physical ability of workers to produce goods and services.
Capital is the physical plants, machinery, and other equipment used to product goods and services.
Entrepreneurship
The creative ability of individuals to seek profits by taking risks and combining resources to produce goods and services.