ECON 110 Introductory Microeconomics

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ECON 110Introductory Microeconomics

• Lecture 1
• Fall, 2009
• William Chow

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Highlights

• Introduction to Course
• Economics What is it about?
• Important concepts needed
• Production Possibility Frontier

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What is Economics?

• Decision making is a practical matter we need to
  deal with on a daily basis.
• We are confronted by the dilemma of limited
  resources and unlimited wants.
• Without this dilemma, we can achieve what we
  desire at no cost and there is no need for
  decision making.

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What is Economics?

• Economics is the study of how people make their
  choices to deal with scarcity.
• Not all decisions made in real life are rational
  or sensible, but we focus on how people make
  rational choices.
• All these analyses will be from the perspective
  of private individuals consumers, and business
  entities firms.

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Useful Tools Concepts

• Learn to use Diagrams ideas can be concisely
  presented, e.g. market interactions.
• Meaning of the slope of a line or curve this
  indicates relationship that may exist.
• Ceteris paribus - (meaning) other things being
  equal very often, we do piecewise analysis.
• Association vs. Causation not necessarily the
  same.

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Useful Tools Concepts

• Fallacy of composition - what is true for parts
  may not be true for the whole.
• A positive statement - one that does not depend
  on subjective judgment. E.g. The fiscal deficit
  forced the government to cut back education
  funding this is something that occurs as a
  fact, regardless of whether it should be the case
  or not.

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Useful Tools Concepts

• A normative statement - one that does depend on
  subjective judgment. E.g. The government should
  help teachers that have been lay off due to
  redundancy.
• Opportunity Cost - this is the value of the best
  alternative forgone when using a resource. It
  measures the cost of trading off two resources.

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Useful Tools Concepts

• The Margin - very often, the decision one has to
  make is not ''all-or-nothing'' but rather ''to
  what extent''. The fact that choices are made at
  the margin forms the basis of rational economic
  behavior. This concerns the measurement of the
  incremental value (or cost) of something.
• E.g. The choice between 1 and 2 hamburgers when
  you are hungry.

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The Production Possibility Frontier (PPF)

• Recent Case
• China US Trade Dispute.
• U.S. textile producers have made clear they want
  tighter restrictions on imports of Chinese-made
  shirts, pants, and other clothing, that have
  surged since global textile quotas ended on
  January 1, 2005.

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The Production Possibility Frontier (PPF)

• In May 2005, the United States placed temporary
  caps of seven-point-five-percent growth a year on
  imports of some Chinese textiles. China's
  official Xinhua News Agency quoted official
  figures as saying almost all those caps have been
  reached.

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The Production Possibility Frontier (PPF)

• Beijing wants to see the caps lifted or at least
  loosened up so more Chinese textiles can reach
  the United States. Chinese officials argue that
  U.S. manufacturers had decades to prepare for the
  end of the global trade quotas.

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The Production Possibility Frontier (PPF)

• Societies / countries are endowed with different
  amount of these resources which can be used to
  produce goods and services people consume (to
  satisfy their wants).
• The limitation in resources translates into
  limits into the amount of goods that we can
  produce.

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The Production Possibility Frontier (PPF)

• Limited resources can be categorized into 4
  types
• Labor
• Land
• Capital, incl. Human Capital
• Entrepreneurship
• These are called factors of production.

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The Production Possibility Frontier (PPF)

• The amounts of goods and services that could be
  produced, given the amount of factors of
  production endowed, are the production
  possibilities of the economy.
• PPF is the boundary that separates the region of
  achievable production and the unachievable.
• It shows all combinations of goods and services
  that can be produced given that resources endowed
  are fully utilized and given the existing state
  of technology.