Copyright (c) 2000 by Harcourt, Inc. All rights reserved. What is Microeconomics? • Economics – The study of the allocation of scarce resources among alternative uses • Microeconomics – The study of the economic choices individuals and firms make and how those choices create markets
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Copyright (c) 2000 by Harcourt, Inc. All rights reserved. What is Microeconomics? Economics –The study of the allocation of scarce resources among alternative.
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Copyright (c) 2000 by Harcourt, Inc. All rights reserved.
What is Microeconomics?
• Economics– The study of the allocation of scarce resources
among alternative uses
• Microeconomics– The study of the economic choices individuals
and firms make and how those choices create markets
Copyright (c) 2000 by Harcourt, Inc. All rights reserved.
APPLICATION 1.1: Scarcity in Nature
• Nature provides examples of scarcity and choice– Birds of prey recognize a trade-off between
spending time and energy in one area and moving to another location
– To avoid using too much energy, animals will leave an area before the food supply is exhausted
Copyright (c) 2000 by Harcourt, Inc. All rights reserved.
Economic Models
• Simple theoretical descriptions that capture the essentials of how the economy works– Used because the “real world” is too
complicated to describe in detail– Models tend to be “unrealistic” but useful
• While they fail to show every detail (such as houses on a map) they provide enough structure to solve the problem (such as how a map provides you with a way to solve how to drive to a new location)
Copyright (c) 2000 by Harcourt, Inc. All rights reserved.
Uses of Microeconomics
Individuals making decisions regarding jobs, purchases, and finances
Businesses making decisions regarding the demand for their product or their costs
Governments making policy decisions regarding laws and regulations
Copyright (c) 2000 by Harcourt, Inc. All rights reserved.
Model of Supply and Demand
• In Figure 1.2(a), the amount of a good purchased is shown on the horizontal axis and the price is on the vertical axis
• The demand curve shows the amount people want to buy at each price and is negatively sloped reflecting the marginalism principle
Copyright (c) 2000 by Harcourt, Inc. All rights reserved.
Model of Supply and Demand
• The upward sloping supply curve reflects the idea of increasing cost of making one more unit of a good as total production increases