Microeconomics Principles

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• Microeconomics Principles
• A. Goodman

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The course

• Class Meets TTh 935 1050, 100 Gen. Lectures
• Office Hours TTh 11 12, MW 10-12 or by
  appointment
• Office location 2145 FAB
• Phone [phone] e-mail allen.goodman_at_wayne.edu
• Department and Course Web site
  http//www.econ.wayne.edu/agoodman/
• Also some material on Blackboard

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Text materials

• The text materials will be
• Principles of Microeconomics, 3rd Ed., by N.
  Gregory Mankiw, to be purchased at the
  appropriate bookstore or on-line.
• Make sure you get the Micro split.

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Exams and Grading

• Students will be responsible for the following
  assignments
• 3 mid-term exams _at_ 15 45
• 1 final exam 30
• Quizzes 15
• Attendance 10
• Intermittent Extra Credit
• Friday night YYY, 630 830 pm

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Teaching Assistants

• Susanne Buesselmann and Meihua Lu.
• Theyre smarter than I am so you should listen
  to them.
• They speak for me and vice versa.

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The Curve
For some curricula, a grade below C- is
considered a failing grade.
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What does it cost you to come to WSU?

• Think carefully.
• What do you GIVE UP in order to come here?

These are costs!
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• Ten Principles of Economics

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Economy. . .

• . . . The word economy comes from a Greek word
  for one who manages a household.

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TEN PRINCIPLES OF ECONOMICS

• A household and an economy face many decisions
• Who will work?
• What goods and how many of them should be
  produced?
• What resources should be used in production?
• At what price should the goods be sold?

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TEN PRINCIPLES OF ECONOMICS

• Society and Scarce Resources
• The management of societys resources is
  important because resources are scarce.
• Scarcity. . . means that society has limited
  resources and therefore cannot produce all the
  goods and services people wish to have.

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TEN PRINCIPLES OF ECONOMICS

• Economics is the study of how society manages its
  scarce resources.

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TEN PRINCIPLES OF ECONOMICS

• How people make decisions.
• People face tradeoffs.
• The cost of something is what you give up to get
  it.
• Rational people think at the margin.
• People respond to incentives.

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TEN PRINCIPLES OF ECONOMICS

• How people interact with each other.
• Trade can make everyone better off.
• Markets are usually a good way to organize
  economic activity.
• Governments can sometimes improve economic
  outcomes.

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TEN PRINCIPLES OF ECONOMICS

• The forces and trends that affect how the
  economy as a whole works.
• The standard of living depends on a countrys
  production.
• Prices rise when the government prints too much
  money.
• Society faces a short-run tradeoff between
  inflation and unemployment.

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Principle 1 People Face Tradeoffs.

• There is no such thing as a free lunch!

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Principle 1 People Face Tradeoffs.

• To get one thing, we usually have to give up
  another thing.
• Guns v. butter
• Food v. clothing
• Leisure time v. work
• Efficiency v. equity

Making decisions requires trading off one goal
against another.
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Principle 1 People Face Tradeoffs

• Efficiency v. Equity
• Efficiency means society gets the most that it
  can from its scarce resources.
• Equity means the benefits of those resources are
  distributed fairly among the members of society.

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Principle 2 The Cost of Something Is What You
Give Up to Get It.

• Decisions require comparing costs and benefits of
  alternatives.
• Whether to go to college or to work?
• Whether to study or go out on a date?
• Whether to go to class or sleep in?
• The opportunity cost of an item is what you give
  up to obtain that item.

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Principle 2 The Cost of Something Is What You
Give Up to Get It.

• Basketball star Lebron James chose to skip
  college and go straight from high school to the
  pros where he has earned millions of dollars.

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Principle 3 Rational People Think at the Margin.

• Marginal changes are small, incremental
  adjustments to an existing plan of action.

People make decisions by comparing costs and
benefits at the margin.
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Principle 3 Example

• Is my first hamburger at a meal worth it?
• How about my second?
• My third?
• My fourth?
• And how about whatever Im using to wash it down
  ???

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Back to Hamburgers!
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Principle 4 People Respond to Incentives.

• Marginal (incremental) changes in costs or
  benefits motivate people to respond.
• The decision to choose one alternative over
  another occurs when that alternatives marginal
  (incremental) benefits exceed its marginal
  (incremental) costs!

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Principle 5 Trade Can Make Everyone Better Off.

• People gain from their ability to trade with one
  another.
• Competition results in gains from trading.
• Trade allows people to specialize in what they do
  best.
• QUESTION
• Do you produce EVERYTHING you need?