1. ECO284 – Microeconomics Dr. Dennis Foster Introduction Assumptions Build Models Generate Conclusions/Predictions Compare to the real world Q =f(K,L) K Q A B Supply Demand Price Quantity PePe QeQe

2. ECO284 - Microeconomics  A framework for understanding...ScarcityChoices (Opportunity) Costs Premise: Rational self-interest Limited Resources Unlimited Wants

3. Choices - there’s no way around them.  What will be produced?  How will it be produced?  Who will get what is produced? Efficiency - the measure of how well we answer these questions. Allocative efficiency Productive efficiency Distributive efficiency

4. Opportunity Costs  Making tradeoffs  Weighing costs and benefits  The value of the next best choice: Attending class...  Every person/group/society makes choices.  TANSTAAFL – look it up.

5. Economic methods  Theories & models of behavior: Assumptions Build Models Generate Conclusions/Predictions Compare to the real world

6. Economic methods  Ceteris paribus assumption.  Decisions made at the margin.  Decisions are made by weighing benefits and costs.  Theories cannot be proved.  Beware of “logical fallacies.” –e.g. post hoc, non sequitor, anecdotes

7. Graphing  A picture is worth a thousand words... Q = f(K,L) K Q A B

8. Graphing When x is: and y is: 1. the number of days in a week price of apples 2. amount of apples people want to buy price of apples 3. (In a world with only 2 goods) amount amount of wheat of films we can produce we can produce 4. amount of insulin people want to buy price of insulin 5. amount of workers employed amount of hamburgers produced per hour at the Burger King. 6. amount of white Ford Taurus’ price of white people want to buy Ford Taurus’ 7. number of U.S. Senate seats number of days in the week

9. ECO284 – Microeconomics Dr. Dennis Foster Introduction Assumptions Build Models Generate Conclusions/Predictions Compare to the real world Q =f(K,L) K Q A B Supply Demand Price Quantity PePe QeQe

10. ECO284 - Microeconomics “Economics is the study of mankind in the ordinary business of life.” --Alfred Marshall