Miller Micro Ppt 01

8/6/2019 Miller Micro Ppt 01

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economics today the micro view

Chapter 1Chapter 1

The Nature ofThe Nature ofEconomicsEconomics

Copyright 2009 Pearson Education Canada


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Copyright 2009 Pearson Education Canada 1-2

Learning ObjectivesLearning Objectives

1.1 Explain the meaning of scarcity.

1.2 Define economics and distinguishbetween microeconomics andmacroeconomics.

1.3 Describe how resource use

decisions are affected by therationality assumption, costs andbenefits at the margin, andincentives.


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ScarcityScarcity

Scarcity

The condition that arises because wantsalways exceed what can be produced OROBTAINED with limited resources.


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ScarcityScarcity

Wants

The goods and services that we desire to

consume as well as the goals that we

desire to achieve.

Resources

Include inputs used to produce the thingsthat we want to consume.

Money is also a resource that suffers from

scarcity


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ScarcityScarcity

Production

Any activity converts resources into goodsand services.


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Defining EconomicsDefining Economics

Microeconomics

The study of decision-making undertakenby individuals (or households) and byfirms.

Individual markets (industries)

Wages

Prices


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Macroeconomics

Studies the behaviour of the economy as a

whole.

The big picture

Inflation

National Income or Expenditures (GDP)

Unemployment International trade

Defining EconomicsDefining Economics


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Rational Decision MakingRational Decision Making

Rationality Assumption

An individual makes decisions based onmaximizing his or her own self-interest.

An individual does not intentionally makedecisions that would leave them worse off.


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Opportunity Cost

The value of the best alternative that mustbe sacrificed when a choice is made.

Pizzas and beer

Home-brewed coffee versus Starbucks

Lamborghini versus Honda Fit


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Individuals respond to incentives.

An Incentive is an inducement to take aparticular action. Think of SALE-priced

items!

Self-interest is not always measured in

terms of dollars and cents.


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The Scientific MethodThe Scientific Method

Models orTheories

Simplified representations of the real worldused as the basis for predictions orexplanations.

A map and a set of directions are examples ofmodels.


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Assumptions

The Ceteris Paribus Assumption(CET-ter-us PAR-uh-bus)

Nothing changes except the factor or factorsbeing studied.

Example

What will happen to sales of compact discs if

their price falls to $5.00?


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Economics is an empirical science.

Real-world data is used to evaluate theusefulness of a model.

Economic models predict how people act,not how they think.


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An Economic Model of Crime Based on rationality assumption

Decisions to engage in crime based on

comparison of marginal benefits and costs Marginal benefits extra monies, thrill of

danger

Marginal costs equipment (guns),expected punishment costs, opportunitycosts


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Positive VersusPositive Versus

Normative EconomicsNormative EconomicsPositive Economics

Statements that can be tested by observing

the facts.

Statement about what is

Normative Economics

Statement based on value judgments. Statement about what ought to be


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Economic Policy andEconomic Policy and

Socioeconomic GoalsSocioeconomic GoalsEconomic Policies (macroeconomic)

Action plans designed to achieve commonly

accepted socioeconomic goals.

Goals include:

Full employment, Efficiency, Economicgrowth, Price stability, Equity (Fairness)


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Economic Policy andEconomic Policy and

Socioeconomic GoalsSocioeconomic GoalsEconomic Theory Provides a role in understanding how

existing and proposed policies relate to

goals.

Example

Economic model of crime (theory)

suggests that CETERIS PARIBUS a policyof increasing the level of punishment(fines) will decrease the crime rate (goal).

Miller Micro Ppt 01

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