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					     Econ 110 Principles of
       Microeconomics




Welcome!
• “Economics is common sense
  made difficult”

    – As seen by an undergraduate student
Dr. Anwar Al-Shriaan
Economics Department




Office hours:
Sundays and Tuesdays 12:00– 12:50 pm and
  by appt.
                       Today
• Syllabus
• Intro to economics
       What will we be studying?
Eco 110 is the first economic theory course
• basic foundation of economics
• tools of discipline
                      Look at
•   buyer and seller behaviour (markets)
•   role of government in markets
•   consumer choice
•   producer behaviour
•   determinants of income and poverty
Why have energy prices risen
         (fallen)?
Why does price control not work?
Is Microsoft a monopoly?
    Why do we care?
Is college worth the cost?
What causes the gender wage gap?
Why do airlines require a Saturday
night stay for a low fare?
            Course Materials
Required:
McConnell and Brue“ Economics“, 16th ed
            Recommended
course web site
• URL at top of the syllabus
• contains
   – course information

  – exam study guides
  – TA’s
                lecture notes
• PowerPoint slides
                    Email list
• I send email about
  – Announcements
  – Course information
• Do you prefer Emails or Facebook groups .
                      TA
• Check my website
• But please see me too!
               Grading Policy

Midterm 1 30%
Midterm 2 30%
Recitation and Participations 10%
Final 30%
               Grading Policy
Letter grades will be assigned as
follows:
94.00 – 100.0 % … A
90.00 – 93.99 % … A-
86.00 – 89.99 % … B+
83.00 – 85.99 % … B
80.00 – 82.99 % … B-
78.00 – 79.99 % … C+
73.00 – 77.99 % … C
70.00 – 72.99 % … C-
66.00 – 69.99 % … D+
60.00 – 65.99 % … D
59.99 – 0.00 % … F
               Grading Policy


Your Final Grades: 1st Mid + 2nd Mid + Part
+ Final.
If Your Participation > 8.5 you will have
Extra credits as follows:

Your Final Grades: 20% X Max (1st Mid, 2nd
Mid, Final)
                             Grading Policy
  Your Final Grades: 1st Mid + 2nd Mid + TA + Part + Final.

     If Your Participation > 8.5 you will have Extra credits as follows:

     Your Final Grades: 20% X Max (1st Mid, 2nd Mid, Final)


1st Mid        2nd Mid       Part          Final         Total
(25)           (25)          (10)          (40)
22             24            9             28            82            B-


%84            %88                         %70
                                                                           86   B+
1st Mid   2nd Mid   Part   Final   Total
(25)      (25)      (10)   (40)


15        17        9      36      77      C



%60       %68              %90             82.4   B-
1st Mid   2nd Mid   Part    Final   Total
(25)      (25)      (10)    (40)

15        17        6       40      76      C


          %68               %100    76



     15        17       9   40      80      B-


                                    86      B+
               final exam
• cumulative
                    Makeup's
•   Usually I don’t do it
•   planned absence: 1 week’s notice
•   emergencies: case-by-case
•   must be an excused absence!
•   must be documented!
•   makeup's may be essay exams or I may re weight
    other exams
                  Attendance
• regular attendance is expected
• you are responsible for information in class
• attendance is necessary to earn extra credit.
       Please be respectful of your
               classmates
• be on time
• do not talk during lecture
• do not have your phone on
                  Cheating
• you cheat,
• I catch you,
• you fail the course

• programmable calculators (e.g. TI-
  83),translators, phones, PDAs, etc.
  are NOT allowed in exams
           Course Schedule
• in syllabus
• note exam dates,
• note the final exam date & time
                        Tips for success
•   come to class with lecture notes to follow
•   read the book!!
•   weekly “look-through”
•   ask for help
•   ME or
•   the TA or
•    ME
•   use available resources
    – course web site
Why you should try to learn something
          in this course.
Percentage of wage dispersion explained by skill factors.



                                               Huge variation in
                                               earnings of low vs.
                                               high-skilled
                                               college graduates
• if you need special accommodations, see me
• if you are having problems in the course, see me
  sooner NOT later
Some definitions of economics
• “Economics is a study
    of mankind in the
ordinary business of life”

         •Alfred Marshall
• "the purpose of studying
economics is not to acquire a
set of ready-made answers to
 economic questions, but to
   learn how to avoid being
  deceived by economists."

              • Joan Robinson
•     “Economics is what economists
    do”
                      •   Jacob Viner
           Economics         (1)


• Study of the choices people make to attain
  their goals given their scarce resources.
Economics: Foundations and Models
  1. What do economists study?

    •   gasoline prices, inflation, housing markets,
        international trade, income inequality, sports, families,
        smoking, health care, happiness

    •   decision-making or choices

  2. How do they do it?

    •   by using theories and models

    •   theories are based on assumptions
What makes a good theory or a
          model?

• Models are not judged by their
  realism but by their usefulness

• What is the most useless map in
  the world?
 To be useful a model has to be refutable
           Why study theory?

•       “I don’t know how it is in theory but
    here is what I know from my 20 years
    of experience will happen “

                 • Laura, Executive MBA student



          • Theory saves time!
                                        Learning Objective 1.3

   Making •When Economists Disagree:
        the
            A Debate over Outsourcing
Connection




                            Does outsourcing by U.S.
                         firms raise or lower incomes in
                                the United States?
           Economics (2)


• Study of the choices people make to attain
  their goals given their scarce resources.
                 Economics

      Scarcity                 Choices

When the price is zero     People behave as if
there is not enough for    they are comparing
       everyone               the costs and
                                 benefits



Unlimite                  Benefits
d wants
            Limited                      Costs
           availabilit
               y
                 Economics


      Scarcity



Everything has alternative
          uses

        Tradeoffs


     Opportunity cost
Economics


                 Choices



  People are rational when they
behave as if they were comparing
       costs and benefits



  People respond to incentives



Decisions are made on the margin
               as if

• “…getting out of bed in the
  morning and making breakfast
  involves more complex decisions
  than the average game of chess.
  (Will that fries egg kill me in
  twenty-eight years?)”
                     • Charles Wheelan
           Economics (3)


• Study of the choices people make to attain
  their goals given their scarce resources.
The Economic Problem That Every
       Society Must Solve
 Trade-offs force society to make choices, particularly when
   answering the following three fundamental questions:

         1 What goods and services will be produced?
       2 How will the goods and services be produced?
     3 Who will receive the goods and services produced?
The Economic Problem That Every
       Society Must Solve
• Centrally Planned Economies versus Market
  Economies
            Centrally planned economy An
          economy in which the government
        decides how economic resources will be
                       allocated.

        Market economy An economy in which
         the decisions of households and firms
            interacting in markets allocate
                  economic resources.
The Economic Problem That Every
       Society Must Solve
• The Modern “Mixed” Economy
       Mixed economy An economy in which
        most economic decisions result from
       the interaction of buyers and sellers in
        markets but in which the government
       plays a significant role in the allocation
                     of resources.
                      Economic Models
• Normative and Positive Analysis
                        Positive analysis Analysis
                         concerned with what is.

                      Normative analysis Analysis
                      concerned with what ought to
                                  be.




          Don’t Let This Happen to YOU!
Don’t Confuse Positive Analysis with Normative Analysis
            The Market

2
C HAPTE R
            System and
            the Circular
                Flow
    SCARCE RESOURCES
      ECONOMIC RESOURCES
PROPERTY RESOURCES
1. LAND

2. CAPITAL

HUMAN RESOURCES
3. LABOR
4. ENTREPRENEURIAL ABILITY
Resource payments: correspond to resource
categories
         PROPERTY RESOURCES
                                RENTAL
         LAND
                                INCOME
                               INTEREST
         CAPITAL
                                INCOME
         HUMAN RESOURCES

        LABOR                   WAGES
                               PROFIT &
        ENTREPRENEUR
                                 LOSS
Macroeconomics Starts Here
            Economic Systems
• Definition: A particular set of institutional
  arrangements and a coordinating mechanism to
  respond to the economizing problem.
• Economic systems differ as to:
 1) who owns the factors of production
 2) the method used to motivate, coordinate, and
  direct economic activity.
          The Command System
• The government owns most property resources
  and economic decision making occur through a
  central economic plan.
• The central planning board determines
  production goals for each firm and resources to
  be allocated.
            The Market System
• There is private ownership of resources.
• Markets and prices coordinate and direct
  economic activity.
• Each participant acts in its own self-interest.
• In pure capitalism the government plays a very
  limited role.
Characteristics of the Market System
•   Private Property.
•   Freedom of firms to choose.
•   Self interest.
•   Competition.
•   Markets and prices.
•   Technology and capital goods.
•   Specialization.
•   Use of money.
•   Active, but limited government.
       The Circular Flow Model


• There are two groups of decision makers in
  the private economy: households (resource
  owners) and businesses (resource users)

• The market system (resource markets and
  product markets) coordinates these decisions.
What happens in the resource markets?
 a. Households sell resources directly or indirectly
   (through ownership of corporations) to businesses.

  b. Businesses buy resources in order to produce
     goods and services.

  c. Interaction of these sellers and buyers
     determines the price of each resource, which in
     turn provides income for the owner of that
     resource.

  d. Flow of payments from businesses for the
     resources constitutes business costs and resource
     owners’ incomes.
What happens in the product markets?
  a. Households are on the buying side of these
    markets, purchasing goods and services.

  b. Businesses are on the selling side of these markets,
    offering products for sale.

  c. Interaction of these buyers and sellers determines
     the price of each product.

  d. Flow of consumer expenditures constitutes sales
    receipts for businesses.
CIRCULAR FLOW MODEL

             RESOURCE
              MARKET




BUSINESSES              HOUSEHOLDS




             PRODUCT
              MARKET
CIRCULAR FLOW MODEL

                RESOURCE
                 MARKET


        RESOURCES             INPUTS



BUSINESSES                        HOUSEHOLDS




                    PRODUCT
                     MARKET
CIRCULAR FLOW MODEL
$ COSTS                                   $ INCOMES
                  RESOURCE
                   MARKET


        RESOURCES                INPUTS



BUSINESSES                           HOUSEHOLDS



       GOODS &                GOODS &
       SERVICES               SERVICES

                    PRODUCT
                     MARKET
CIRCULAR FLOW MODEL
$ COSTS                                   $ INCOMES
                  RESOURCE
                   MARKET


        RESOURCES                INPUTS



BUSINESSES                           HOUSEHOLDS



       GOODS &                GOODS &
       SERVICES               SERVICES

                    PRODUCT
                     MARKET
CIRCULAR FLOW MODEL
$ COSTS                                   $ INCOMES
                  RESOURCE
                   MARKET


        RESOURCES                INPUTS



BUSINESSES                           HOUSEHOLDS



       GOODS &                GOODS &
       SERVICES               SERVICES

                    PRODUCT
                     MARKET
$ REVENUE                         $ CONSUMPTION
CIRCULAR FLOW MODEL
$ COSTS                                   $ INCOMES
                  RESOURCE
                   MARKET


        RESOURCES                INPUTS



BUSINESSES                           HOUSEHOLDS



       GOODS &                GOODS &
       SERVICES               SERVICES

                    PRODUCT
                     MARKET
$ REVENUE                         $ CONSUMPTION
More Realistic Circular Flow
Macroeconomic Policies
     Limitations of the model:
1. Does not depict transactions between
   households and between businesses (inter-
   businesses).

2. Ignores government and the “rest of the
   world” in the decision-making process (we
   will take care of them later on).

3. Does not explain how prices of products and
   resources are actually determined.

				
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posted:8/18/2012
language:English
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