introduction to micro economics lecture 01

7/28/2019 Introduction to Micro Economics Lecture 01

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Microeconomics

Lecture 1


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Topics to be Discussed

The Themes of Microeconomics

What Is a Market?


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Economics

Economics is the study of how societies

use scarce resources to produce

valuable commodities and distribute

them among different people.


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Preliminaries

Microeconomics deals with:

Behavior of individual units When Consuming

How we choose what to buy


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Preliminaries


Behavior of individual units When Producing

How we choose what to produce


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Preliminaries


Markets: The interaction of consumersand producers


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Preliminaries

Macroeconomics deals with:

Analysis of aggregate issues:Economic growth

Inflation

Unemployment


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Microeconomics vs.

Macroeconomics

The Linkage Between Micro and Macro-

economics

Microeconomics is the foundation of

macroeconomic analysis


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Themes of Microeconomics

According to Mick Jagger & the Rolling

Stones

You cant always get what you want


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Why Not?

Limited Resources

Unlimited Wants


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Microeconomics

Allocation of Scarce Resources and

Trade-offs

In a planned economy

In a market economy


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Microeconomics and Optimal Trade-offs

1. Consumer Theory

2. Workers

3. Theory of the Firm


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Microeconomics and Prices

The role ofprices in a market

economy

Howprices are determined


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Theories and Models

Microeconomic Analysis

Theories are used to explain

observed phenomena in terms of aset of basic rules and assumptions.

For example

The Theory of the Firm

The Theory of Consumer Behavior


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Theories and Models

Microeconomic Analysis

Models:

a mathematical representation of a

theory used to make a prediction.


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Positive Versus

Normative Economics

Positive Economics

Positive economics deals with the

observations or predictions of the

facts of economic life.

For example:What will be the impact of an increase

in wages on the price of a product?


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Positive versus

Normative Economics

Normative Economics

Normative Economicsis the value

judgments about how economicsshould operate, based on certain

moral principles or preferences?

For example:

What wage rate should be paid to the

auto workers to make them an active

member of the society?


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What is a Market?

Markets

A geographically defined area where

buyers and sellers interact to

determine the price of a product or a

set of products.


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What is a Market?

Markets vs. Industries

Industries are the supply side of the

market.


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What is a Market?

Defining the Market

The market parameters must be set

before an analysis of the market can

take place.


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What is a Market?

Arbitrage

Buying a product at a low price in one

location and selling at a high price in

another


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What is a Market?

Competitive vs. Noncompetitive Markets

Competitive Markets

Because of the large number of

buyers and sellers, no individual

buyer or seller can influence theprice.

Example: Most agricultural markets


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What is a Market?

Competitive vs. Noncompetitive

Markets

Noncompetitive Markets

Markets where individual producers

can influence the price.Example: OPEC


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What is a Market?

Market Price

Competitive markets establish one

price.

Noncompetitive markets may set

many prices for the same product.


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What is a Market?

Market Definition - The Extent of a

Market

Market Definition

Which buyers and sellers should be

included in a given market


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What is a Market?

Market Definition - The Extent of a

Market

Market Extent

Defines the boundaries of the

marketGeographic

Range of products


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What is a Market?

Examples

Geographic boundaries

Gold: Lahore vs. Karachi

Housing: Islamabad vs. Rawalpindi


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What is a Market?

Examples

Range of Products

Gasoline: regular, super, & diesel

Cameras: Polaroid, point & shoot,

digital


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What is a Market?

Examples

Markets for Prescription Drugs

Well-defined markets - therapeutic

drugs

Ambiguous markets - painkillers


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Summary

Scope of Microeconomics


Limited Resources & Trade-offs

Prices

Theories & Models


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Summary

Positive vs. Normative Economics

Markets

Market Defined

Competitive vs. Non-competitive

MarketsMarket Extent


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End of lecture 1

introduction to micro economics lecture 01

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