1、,Chapter 1,Preliminaries,Chapter 1: Preliminaries,Slide 2,Topics to be Discussed,The Themes of MicroeconomicsWhat Is a Market?Real Versus Nominal PricesWhy Study Microeconomics?,Chapter 1: Preliminaries,Slide 3,Preliminaries,Microeconomics deals with:Behavior of individual unitsWhen ConsumingHow we
2、choose what to buy,Chapter 1: Preliminaries,Slide 4,Preliminaries,Microeconomics deals with:Behavior of individual unitsWhen ProducingHow we choose what to produce,Chapter 1: Preliminaries,Slide 5,Preliminaries,Microeconomics deals with:Markets: The interaction of consumers and producers,Chapter 1:
3、Preliminaries,Slide 6,Preliminaries,Macroeconomics deals with:Analysis of aggregate issues:Economic growthInflationUnemployment,Chapter 1: Preliminaries,Slide 7,Preliminaries,The Linkage Between Micro and Macro-economicsMicroeconomics is the foundation of macroeconomic analysis,Chapter 1: Preliminar
4、ies,Slide 8,The Themes of Microeconomics,According to Mick Jagger* & the Rolling Stones“You cant always get what you want”*Economics degree from London School of Economics,Chapter 1: Preliminaries,Slide 9,The Themes of Microeconomics,Why Not?Limited Resources,Chapter 1: Preliminaries,Slide 10,The Th
5、emes of Microeconomics,MicroeconomicsAllocation of Scarce Resources and Trade-offsIn a planned economyIn a market economy,Chapter 1: Preliminaries,Slide 11,The Themes of Microeconomics,Microeconomics and Optimal Trade-offs1. Consumer Theory2. Workers3. Theory of the Firm,Chapter 1: Preliminaries,Sli
6、de 12,The Themes of Microeconomics,Microeconomics and PricesThe role of prices in a market economyHow prices are determined,Chapter 1: Preliminaries,Slide 13,Theories and Models,Microeconomic AnalysisTheories are used to explain observed phenomena in terms of a set of basic rules and assumptions.For
7、 exampleThe Theory of the Firm The Theory of Consumer Behavior,Chapter 1: Preliminaries,Slide 14,Theories and Models,Microeconomic AnalysisModels: a mathematical representation of a theory used to make a prediction.,Chapter 1: Preliminaries,Slide 15,Theories and Models,Microeconomic AnalysisValidati
8、ng a TheoryThe validity of a theory is determined by the quality of its prediction, given the assumptions.,Chapter 1: Preliminaries,Slide 16,Theories and Models,Microeconomic AnalysisEvolving the TheoryTesting and refining theories is central to the development of the science of economics.,Chapter 1
9、: Preliminaries,Slide 17,Positive Versus Normative Analysis,Positive AnalysisPositive analysis is the use of theories and models to predict the impact of a choice.For example:What will be the impact of an import quota on foreign cars?What will be the impact of an increase in the gasoline excise tax?
10、,Chapter 1: Preliminaries,Slide 18,Positive versus Normative Analysis,Normative AnalysisNormative analysis addresses issues from the perspective of “What ought to be?”For example:Consider the equity and efficiency trade-off of an increase in the gasoline excise tax versus import restriction on forei
11、gn oil.,Chapter 1: Preliminaries,Slide 19,What is a Market?,MarketsA geographically defined area where buyers and sellers interact to determine the price of a product or a set of products.,Chapter 1: Preliminaries,Slide 20,What is a Market?,Markets vs. IndustriesIndustries are the supply side of the
12、 market.,Chapter 1: Preliminaries,Slide 21,What is a Market?,Defining the MarketThe market parameters must be set before an analysis of the market can take place.,Chapter 1: Preliminaries,Slide 22,What is a Market?,ArbitrageBuying a product at a low price in one location and selling at a high price
13、in another,Chapter 1: Preliminaries,Slide 23,What is a Market?,Competitive vs. Noncompetitive MarketsCompetitive MarketsBecause of the large number of buyers and sellers, no individual buyer or seller can influence the price.Example: Most agricultural markets,Chapter 1: Preliminaries,Slide 24,What i
14、s a Market?,Competitive vs. Noncompetitive MarketsNoncompetitive MarketsMarkets where individual producers can influence the price.Example: OPEC,Chapter 1: Preliminaries,Slide 25,What is a Market?,Market PriceCompetitive markets establish one price.Noncompetitive markets may set many prices for the
15、same product.,Chapter 1: Preliminaries,Slide 26,What is a Market?,Market Definition & The Extent of a MarketMarket Definition Which buyers and sellers should be included in a given market,Chapter 1: Preliminaries,Slide 27,What is a Market?,Market Definition - The Extent of a MarketMarket Extent Defi
16、nes the boundaries of the marketGeographicRange of products,Chapter 1: Preliminaries,Slide 28,What is a Market?,ExamplesGeographic boundariesGasoline: US vs CaliforniaHousing: Chicago vs a Chicago neighborhood,Chapter 1: Preliminaries,Slide 29,What is a Market?,ExamplesRange of ProductsGasoline: reg
17、ular, super, & dieselCameras: SLRs, point & shoot, digital,Chapter 1: Preliminaries,Slide 30,What is a Market?,ExamplesMarkets for Prescription DrugsWell-defined markets - therapeutic drugsAmbiguous markets - painkillers,Chapter 1: Preliminaries,Slide 31,Real Versus Nominal Prices,Nominal price is t
18、he absolute or current dollar price of a good or service when it is sold.Real price is the price relative to an aggregate measure of prices or constant dollar price.,Chapter 1: Preliminaries,Slide 32,Real Versus Nominal Prices,The Consumer Price Index (CPI) is an aggregate measure.Real prices are em
19、phasized to permit the analysis of relative prices.,Chapter 1: Preliminaries,Slide 33,Real Versus Nominal Prices,Calculating Real Prices,Chapter 1: Preliminaries,Slide 34,An Example:Calculating the Real Price of Milk,1970.4038.8.40 = 38.8/38.8 x .401980.6582.4.31 = 38.8/82.4 x .6519991.05167.0.24 =
20、38.8/167.0 x 1.05,Nominal PriceReal Price of MilkYearof MilkCPIin 1970 dollars,Chapter 1: Preliminaries,Slide 35,Calculating Real Prices:An Example - Eggs & College,Chapter 1: Preliminaries,Slide 36,Calculating Real Prices:An Example - Eggs & College,Consumer Price Index(1983 = 100)38.853.882.4107.6
21、130.7163.0Nominal PricesGrade A Large Eggs$0.61$0.77$0.84$0.80$0.98$1.04College Education$2,530$3,403$4,912$8,156$12,800$19,213Real Prices ($1970)Grade A Large Eggs$0.61$0.56$0.40$0.29$0.30$0.25College Education$2,530$2,454$2,313$2,941$3,800$4,573,197019751980198519901998,Chapter 1: Preliminaries,Sl
22、ide 37,An Example: The Minimum Wage,Observations1. The minimum wage has been increasing in nominal terms since 1940.2. The 1999 real minimum wage was no higher in 1999 than 1950.,Chapter 1: Preliminaries,Slide 38,An Example: The Minimum Wage,What Do You Think?What are the positive and normative issu
23、es of raising the minimum wage?,Chapter 1: Preliminaries,Slide 39,Why Study Microeconomics?,Microeconomic concepts are used by everyone to assist them in making choices as consumers and producers.,Chapter 1: Preliminaries,Slide 40,Why Study Microeconomics?,Two ExamplesFord and the development of its
24、 SUVsPublic Policy DesignAutomobile emission standards for the 21st century,Chapter 1: Preliminaries,Slide 41,Why Study Microeconomics?,Ford and the development of its SUVsQuestionsConsumer acceptance and demandProduction costPricing strategy,Chapter 1: Preliminaries,Slide 42,Why Study Microeconomic
25、s?,Ford and the development of its SUVsQuestionsRisk analysisOrganizational decisionsGovernment regulation,Chapter 1: Preliminaries,Slide 43,Why Study Microeconomics?,Auto emission standards for the 21st centuryQuestionsImpact on consumersImpact on producersHow to enforce the standardsWhat are the b
26、enefits and costs?,Chapter 1: Preliminaries,Slide 44,Summary,Microeconomics is concerned with the decisions made by small economic units.Microeconomics relies heavily on the use of theory and models.,Chapter 1: Preliminaries,Slide 45,Summary,Microeconomics is concerned with positive questions and no
27、rmative analysis.A market refers to a collection of buyers and sellers who interact and to the possibility for sales and purchases that results from that interaction.,Chapter 1: Preliminaries,Slide 46,Summary,The market price is established by the interaction of buyers and sellers.A markets geograph
28、ic boundaries and range of products must be defined. To eliminate the effects of inflation we measure real prices, rather than nominal prices.,End of Chapter 1,Preliminaries,Chapter 2,The Basics of Supply and Demand,Chapter 2: The Basics of Supply and Demand,Slide 49,Topics to Be Discussed,Supply an
29、d DemandThe Market MechanismChanges in Market EquilibriumElasticities of Supply and DemandShort-Run Versus Long-Run Elasticities,Chapter 2: The Basics of Supply and Demand,Slide 50,Topics to Be Discussed,Understanding and Predicting the Effects of Changing Market ConditionsEffects of Government Inte
30、rvention-Price Controls,Chapter 2: The Basics of Supply and Demand,Slide 51,Introduction,Applications of Supply and Demand AnalysisUnderstanding and predicting how world economic conditions affect market price and productionAnalyzing the impact of government price controls, minimum wages, price supp
31、orts, and production incentives,Chapter 2: The Basics of Supply and Demand,Slide 52,Introduction,Applications of Supply and Demand AnalysisAnalyzing how taxes, subsidies, and import restrictions affect consumers and producers,Chapter 2: The Basics of Supply and Demand,Slide 53,Supply and Demand,The
32、Supply CurveThe supply curve shows how much of a good producers are willing to sell at a given price, holding constant other factors that might affect quantity supplied,Chapter 2: The Basics of Supply and Demand,Slide 54,Supply and Demand,The Supply CurveThis price-quantity relationship can be shown
33、 by the equation:,Chapter 2: The Basics of Supply and Demand,Slide 55,Supply and Demand,The SupplyCurve Graphically,Quantity,Price($ per unit),Chapter 2: The Basics of Supply and Demand,Slide 56,Supply and Demand,The SupplyCurve Graphically,Quantity,Price($ per unit),Chapter 2: The Basics of Supply
34、and Demand,Slide 57,Supply and Demand,Non-price Determining Variables of SupplyCosts of ProductionLaborCapitalRaw Materials,Chapter 2: The Basics of Supply and Demand,Slide 58,Supply and Demand,The cost of raw materials fallsAt P1, produce Q2At P2, produce Q1Supply curve shifts right to SMore produc
35、ed at any price on S than on S,P,Change in Supply,Q,Chapter 2: The Basics of Supply and Demand,Slide 59,Supply and Demand,Supply - A ReviewSupply is determined by non-price supply-determining variables as such as the cost of labor, capital, and raw materials.Changes in supply are shown by shifting t
36、he entire supply curve.,Chapter 2: The Basics of Supply and Demand,Slide 60,Supply and Demand,Supply - A ReviewChanges in quantity supplied are shown by movements along the supply curve and are caused by a change in the price of the product.,Chapter 2: The Basics of Supply and Demand,Slide 61,Supply
37、 and Demand,The Demand CurveThe demand curve shows how much of a good consumers are willing to buy as the price per unit changes holding non-price factors constant.This price-quantity relationship can be shown by the equation:,Chapter 2: The Basics of Supply and Demand,Slide 62,Supply and Demand,Qua
38、ntity,Price($ per unit),Chapter 2: The Basics of Supply and Demand,Slide 63,Supply and Demand,Quantity,Price($ per unit),Chapter 2: The Basics of Supply and Demand,Slide 64,Supply and Demand,Non-price Determining Variables of DemandIncomeConsumer TastesPrice of Related GoodsSubstitutesComplements,Ch
39、apter 2: The Basics of Supply and Demand,Slide 65,P,Q,Change in Demand,Supply and Demand,Income IncreasesAt P1, produce Q2At P2, produce Q1Demand Curve shifts rightMore purchased at any price on D than on D,Chapter 2: The Basics of Supply and Demand,Slide 66,Shifts in Supply and Demand,Demand - A Re
40、viewDemand is determined by non-price demand-determining variables, such as, income, price of related goods, and tastes.Changes in demand are shown by shifting the entire demand curve.Changes in quantity demanded are shown by movements along the demand curve.,Chapter 2: The Basics of Supply and Dema
41、nd,Slide 67,The Market Mechanism,Quantity,Price($ per unit),Chapter 2: The Basics of Supply and Demand,Slide 68,The Market Mechanism,Characteristics of the equilibrium or market clearing price:QD = QSNo shortageNo excess supplyNo pressure on the price to change,Chapter 2: The Basics of Supply and De
42、mand,Slide 69,The Market Mechanism,Quantity,Price($ per unit),Chapter 2: The Basics of Supply and Demand,Slide 70,The Market Mechanism,The market price is above equilibriumThere is excess supplyProducers lower pricesQuantity demanded increases and quantity supplied decreasesThe market continues to a
43、djust until the equilibrium price is reached.,A Surplus,Chapter 2: The Basics of Supply and Demand,Slide 71,The Market Mechanism,Chapter 2: The Basics of Supply and Demand,Slide 72,The Market Mechanism,The market price is above equilibrium:There is excess supplyProducers lower pricesQuantity demande
44、d increases and quantity supplied decreasesThe market continues to adjust until the equilibrium price is reached,Surplus - Review:,Chapter 2: The Basics of Supply and Demand,Slide 73,The Market Mechanism,Chapter 2: The Basics of Supply and Demand,Slide 74,The Market Mechanism,The market price is bel
45、ow equilibrium:There is a shortageProducers raise pricesQuantity demanded decreases and quantity supplied increasesThe market continues to adjust until the new equilibrium price is reached.,Shortage,Chapter 2: The Basics of Supply and Demand,Slide 75,The Market Mechanism,Market Mechanism Summary1)Su
46、pply and demand interact to determine the market-clearing price.2) When not in equilibrium, the market will adjust to alleviate a shortage or surplus and return the market to equilibrium.3)Markets must be competitive for the mechanism to be efficient.,Chapter 2: The Basics of Supply and Demand,Slide
47、 76,Changes In Market Equilibrium,Equilibrium prices are determined by the relative level of supply and demand.Supply and demand are determined by particular values of supply and demand determining variables.Changes in any one or combination of these variables can cause a change in the equilibrium p
48、rice and/or quantity.,Chapter 2: The Basics of Supply and Demand,Slide 77,Raw material prices fall S shifts to SSurplus P1 of Q1, Q2Equilibrium P3, Q3,P,Q,Changes In Market Equilibrium,Chapter 2: The Basics of Supply and Demand,Slide 78,Income IncreasesDemand shifts to D1Shortage P1 of Q1, Q2Equilibrium P3, Q3,P,Q,Changes In Market Equilibrium,Chapter 2: The Basics of Supply and Demand,Slide 79,Income Increases & raw material prices fallThe increase in D is greater than the increase in SEquilibrium price and quantity increase to P2, Q2,
