1. Contents of course Module 1.Fundamental concepts in Microeconomics
Module 2. Individual and society economic problem
Module 3.Demand and Supply
Module 4.Market Equilibrium.
Module 5.Elasticity of Demand and Supply
Module 6.Consumer behavior.

2. Chapter1: fundamental concepts in microeconomics
Lecture 1

3. INTRODUCTION
Some examples that makes the study of economics very important:
The decision of individuals to buy products
The decision of firms
The International Monetary Fund(IMF)
Tax policies or subsidies
The World Trade Organization
Cooperation Council for the Arab Gulf States
Organization of Petroleum Exporting Countries(OPEC(

4. Three questions to answer
There are three types of decisions that need to be made in economy:
Which goods and services to produce,
How to produce them,
for whom should get them.

5. Definition of economics
Economics is the study of how individuals and societies use limited resources to satisfy unlimited wants.

6. Economic Theory
Theory: an organized system of accepted knowledge that applies in a variety of circumstances to explain a specific set of phenomena.
Economic theory: attempts to abstract from human behavior (producer and consumer)

7. Economic Analysis
Economic analysis is both based on deduction and induction.
Deduction: is a method of reasoning in which one deduces a theory based on a set of almost self-evident principles.
Induction: is a method of reasoning in which one develops general principles by looking from patterns in the data.

8. Economic Model scientific method that consists of the following steps:
observe a phenomenon,
make simplifying assumptions and formulate a hypothesis,
generate predictions, and
test the hypothesis.

9. Simplifying assumptions
ceteris paribus – holding everything else constant
abstraction in economics used to simplify reality

10. Economic Model
The extraction of a model can be in the form of words, abstractions, assumptions (ceteris paribus), diagrams or mathematical equations.

11. Microeconomics and Macroeconomics
microeconomics - the study of economic behavior of individual human beings and firms.
macroeconomics - the study affecting the entire economy, including unemployment, inflation, economic growth, and monetary and fiscal policy.

12. Microeconomics Agents
Firms:
Produce and sell goods and services
Buy inputs (labor, capital and raw materials)
Consumers:
Buy goods and services
Sell inputs (labor services, loanable funds)

13. Positive and normative economic
positive economic
attempt to describe how the economy functions
relies on testable hypotheses
normative economic
relies on value judgments to evaluate or recommend alternative policies.

14. Individual economic problem
Example:
The consumer A have a limited budget:120 dollars
Individuals have unlimited wants,
2goods:
book (10$)
DVD (20$)

15. Figure 1: The graph of the consumer budget
DVD ($20)
Book ($10)
Total cost 6
120 = 5 2
120 = 4
120 = 3
120 = 8
120 = 1 10
120 = 12
120 =
impossible to obtain
possible to obtain

16. Rational self-interest
Individuals select the choices that makes them happiest, given the information available at the time of a decision.

17. Society economic problem resources scarcity
land
all natural resources
minerals
water
wildlife
labor:
Consists of the physical and intellectual services provided by human beings.

18. Society economic problem scare resources
capital
physical capital
goods used to make other goods
Factories
Machines
Infrastructure
Financial capital
stocks, bonds, bank loans
entrepreneurial ability
Refers to the ability to organize production and risks

19. Resource payments Economic Resource Resource payment land rent
labor wages
capital interest
entrepreneurial ability profit

20. Scarcity the basic economic problem is scarcity:
wants are unlimited, but resources
are limited.
so with scarcity, we must make choices.

21. Model of possibilities production Frontier(PPF)
Assumptions:
model of scarcity, choice, & opportunity cost
choice between 2 goods
PPF shows maximum possible output with combination of 2 goods, given current resources

22. Production Possibilities Curve
Pizzas (00,000s) 1 2 3 4
Robots (000s) 10 9 7

23. Production Possibilities Curve
Pizzas (00,000s) 1 2 3 4
Robots (000s) 10 9 7
Production possibilities curve

24. Production Possibilities Curve
attainable W
unattainable
Attainable

25. Using the PPF points on or inside the PPF are possible
points INSIDE the PPF
are inefficient(do not use all resources)
points ON the PPF
are efficient(use all resources)
points outside the PPF are not possible at this time

26. scarcity & tradeoffs the PPF shows limits to production
so must choose between Robot & Pizza combinations
-- give up Robots to get more Pizzas
-- give up Pizzas to get more Robots
-- TRADEOFF

27. Opportunity Cost
Opportunity cost is the process of choosing one good or service over another.

28. Opportunity Cost on PPF there are tradeoffs -- how much is given up?

29. opportunity cost of 1 Pizza:
A to B
= 1 Robot
B to C
= 2 robots
C to D
= 3 robots 10 A 1 9 B 2 7 C 3 4 D E

30. opportunity costs are increasing
cost (in robots) increases
as pizza production increases
PPF is concave (bowed out)
why?
-- harder to switch resources between robots and pizza

31. opportunity costs are increasing
At first when making more pizza
switch the best resources from robot production
But as we make more pizza
resources switched are less and less suitable for robot production

32. Shifts in the PPF if we get more resources if technology improves
then the PPF will shift out
produce more CDs and more water
economic growth!

33. Shifts in the PPF the unattainable becomes attainable robots pizza
With economic growth,
the unattainable becomes
attainable