Microeconomics. Chapter 1, Apuntes de Microeconomía

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Chapter 1Chapter^

Preliminaries

Microeconomics - Microeconomics^ deals^ with^

the^ behaviour^ of

Microeconomicsindividual economic units.These units^ include^ consumers

workers

• These^ units^ include

consumers,^ workers, investors, firms, markets, etc.- Microeconomics explains how and why theseunits^ make^ ( optimal/efficient

)^ economic( p ) decisions. Additionally, Microeconomics studieshow^ economic^

unites^ interact^

among th^ lthemselves.- By^ contrast^ Macroeconomics

deals^ with

• By^ contrast,^ Macroeconomics

deals^ with aggregate^ economic

outputs,^ such^ as

GDP

growth,^ prices,^ unemployment,

interest^ rates, growth,^ prices,^ unemployment,

interest^ rates, etc.^

Scarcity and the Opportunity CostScarcity^ and the Opportunity CostMEET OUR NEEDS WITH SCARE RESOURCESNEED TO CHOOSE- For instance, a firm with limited resources mustdecide what to produce.

Scarcity and the Opportunity CostScarcity^ and the Opportunity CostEconomic^ units

must^ make^ choices

-Economic^ units

must^ make^ choices

because resources are scarce.-Microeconomics^

deals^ with^ limits:

b d^ t^ ti^

t^ i t^ bilit^

t

budgets,^ time^

constraints,^ ability

to

produce, etc.-How does one make the most of theseli^ it?^ H^ d^

ll^ t

limits?^ How^ does

one^ allocate^ scarce

resources?-The notion of Opportunity Cost.pp

y

The PPF and the Opportunity CostThe^ PPF and the Opportunity Cost-Let us focus on a single

firm : OPPORTUNITY COST:The amount of one good that the firm has to give up inThe amount of one good that the firm has to give up inorder to produce one additional unit of an alternativegood.g PRODUCTION-POSSIBILITY FRONTIER:PRODUCTION POSSIBILITY FRONTIER:It shows the combinations (

trade-offs ) of goods (outputs) that can be produced with fixed quantities of factors ofthat can be produced with fixed quantities of factors ofproduction (inputs).

The PPF and the Opportunity CostThe^ PPF and the Opportunity Cost

Opportunity Alternatives^ Food

Opportunity Clothes Cost A^0

B^1

B^1

C^2

D^3

E^4

B^ i^ C^

t^ i^ E^

i

Basic Concepts in Economics 1 G^ d^ h^ t^ i ti

f^ ti^ i i

1. Goods: characteristics, function, provision,etc. 2 A^ t^ (i^ E^

i^ )

2. Agents (in Economics).3. Factors of Production (inputs).

GoodsGoodsFree (air) Characteristics Economic (oil^ scarce)Economic (oil - scarce)Input Function Function OutputPublicPublic Provision^ Private

Factors of Production (inputs)Factors^ of Production (inputs)Land- Land.- Labour- Labour.- CapitalCapital.- EtcEtc.

Economic^ ModellingEconomic^ Modelling Scientific Method:Scientific^ Method: Build Theories^

Explain Build^ TheoriesBuild Models

ExplainPredict Build Models^

Predict^14

Economic^ ModellingEconomic^ ModellingON Graph : Plots the function in a continuous way.NTATIO Table : Summarises the observations for discretePRESENsamples.ONS REP Equation : Mathematical functional form. q UNCTIO FU

Graphs in Economicsp Linear Functions : Shape of straight lines (ex: Y = a – bX)Y

dYYYΔY  a FORMS

dYYY ΔY^ b dXXX ΔX cd (^) Slopecd   ONAL Fc^ y^ c^ ΔY dy^ yFUNCTIFd^ ΔX

Xx x (^) c d 0 a/b

Graphs in Economics^ p - Krugman and Wells^ Microeconomics Krugman and Wells,^ Microeconomics

.^19

Graphs in Economicsp