welcome to econ 308 managerial economics. index cards: front index cards: front econ 308 f09/tr...
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Welcome to ECON 308Welcome to ECON 308
Managerial EconomicsManagerial Economics
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Index Cards: FrontIndex Cards: Front
• ECON 308 F09/TR 12:30) ECON 308 F09/TR 12:30)
• Name: (underline what you go by)Name: (underline what you go by)
• Email: (the one you read)Email: (the one you read)
• Phone:Phone:
• Major:Major:
• Source of News:Source of News:
• Favorite Book: Fiction or NonFavorite Book: Fiction or Non
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Index Card: BackIndex Card: Back
• Most recent Job: Describe activitiesMost recent Job: Describe activities
• Expectations 6 years from nowExpectations 6 years from now
• Message to ME (ADDS = Your Story)Message to ME (ADDS = Your Story)
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ECONOMICSECONOMICS
Economics Is a Economics Is a ScienceScience That That Analyzes How Analyzes How IndividualsIndividuals Behave, in a World of Behave, in a World of Scarcity.Scarcity.
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Construction of TheoryConstruction of Theory
• AbstractionsAbstractions
• DefinitionsDefinitions
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Definitions:Definitions: Words to describe realityWords to describe reality
Children learn words in pairs
( in ) ( out )
( up ) ( down )
( left ) ( right )
( Hot ) ( Cold )
Alternative perspective: The world exists in a continuum
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Definitions break up the continuum Definitions break up the continuum into partsinto parts
• RedRed Yellow Yellow BlueBlue
• OrangeOrange GreenGreen• Red Orange Yellow Green Blue Indigo VioletRed Orange Yellow Green Blue Indigo Violet
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Economic AnalysisEconomic Analysis
• Looks at small degrees of ChangeLooks at small degrees of Change
• Marginal: Additional: One more…Marginal: Additional: One more…
• Marginal Value: Additional Value of having Marginal Value: Additional Value of having one moreone more
• Marginal Revenue: Additional revenue Marginal Revenue: Additional revenue from one more.from one more.
• Marginal Cost: Additional cost of one moreMarginal Cost: Additional cost of one more
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Construction of TheoryConstruction of Theory
• AbstractionsAbstractions
• DefinitionsDefinitions
• AssumptionsAssumptions
• ImplicationsImplications
• Adoption of TheoryAdoption of Theory
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A Good Is A Good Is AnythingAnything, That an , That an Individual Individual WantsWants to to Have More OfHave More Of, , at Zero Priceat Zero Price..
• Anything : Material or Non-materialAnything : Material or Non-material
• An individual wantsAn individual wants
• Have More ofHave More of
• At Zero PriceAt Zero Price
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Resource: Anything that can be Resource: Anything that can be used to produce Goods.used to produce Goods.
• Land = all its attributesLand = all its attributes
• Labor = PeopleLabor = People
• Capital = Buildings & EquipmentCapital = Buildings & Equipment
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AssumptionsAssumptions
• Humankind has unlimited wantsHumankind has unlimited wants
• Our resources are limitedOur resources are limited
• ScarcityScarcity : Individually, and as a Society, : Individually, and as a Society, we do not have enough resources to we do not have enough resources to produce all the things we want.produce all the things we want.
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Implications of ScarcityImplications of Scarcity
• ChoiceChoice: people must choose which goods : people must choose which goods to acquire.to acquire.
• Economic CostEconomic Cost: The Cost of any action, is : The Cost of any action, is the personal value of the next highest the personal value of the next highest valued alternative given-up.valued alternative given-up.
• CompetitionCompetition: We are in a state of : We are in a state of competition for the use of resourcescompetition for the use of resources
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Forms of Competition in SocietyForms of Competition in Society
• ViolenceViolence, or Threat of Violence, or Threat of Violence
• Social/Political Social/Political : competition on the basis : competition on the basis of some limited behavior or characteristicof some limited behavior or characteristic
• Economic/MarketEconomic/Market: competition based on : competition based on offering the highest value in offering the highest value in exchangeexchange..
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Primary Social Goal = FairnessPrimary Social Goal = Fairness
• Violence: not fair.Violence: not fair.
• Social political: not fair.Social political: not fair.
• Economic: not fair,Economic: not fair,
• Life is NOT FAIR !!Life is NOT FAIR !!
But, the market offers the broadest and most But, the market offers the broadest and most fair systemfair system
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What Economics Is AboutWhat Economics Is About
• MicroeconomicsMicroeconomics: decisions of individuals : decisions of individuals and firms: what to buy and what to and firms: what to buy and what to produce.produce.
• MacroeconomicsMacroeconomics: the whole economic : the whole economic system and the role of government.system and the role of government.
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Mechanisms of ChoiceMechanisms of Choice
• PoliticalPolitical: our representatives make choices: our representatives make choices
• Economic/marketEconomic/market: individuals and firms : individuals and firms make choices based on relative prices make choices based on relative prices about what to produceabout what to produce
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Product Markets
FIRMSHOUSEHOLD
ResourceMarkets
$'s $'s Revenue
$'s Income $'s
Goods &Services
Goods &Services
Resources Inputs
Circular Flow Diagram of the Exchange Economy
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Circular Flow Diagram of the Circular Flow Diagram of the Exchange Economy Exchange Economy
• HouseholdsHouseholds: Decisions: What to sell? : Decisions: What to sell? What to buy? What to buy? Assume Maximize UtilityAssume Maximize Utility
• FirmsFirms: Decisions: What inputs to use? : Decisions: What inputs to use? What to produce? What to produce? Assume Maximize Assume Maximize ProfitsProfits..
• MarketsMarkets: Factor Markets, Product Markets: Factor Markets, Product Markets
Role of MoneyRole of Money: The medium of exchange: The medium of exchange
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Scarcity Scarcity Society Choices Society Choices
• What to produceWhat to produce? Goal find the mixture ? Goal find the mixture of outputs that maximizes society’s value.of outputs that maximizes society’s value.
• How to produceHow to produce? Goal: find the optimal ? Goal: find the optimal mix of inputs to maximize technical output.mix of inputs to maximize technical output.
• For whom to produceFor whom to produce? Who will get to ? Who will get to consume the goods produced.consume the goods produced.