# Course Introduction

We will mainly focus on the basic concepts.

## Lecture Materials

• The main book: Pindyck, R.S. and Rubinfeld, D.L., 2010, Microeconomics (7th Edition)

## Learning Activities

• Lectures (There are also quizs.)
• Homework
• Assessment method: Exam (In the last lecture)

## Assessment Method

• Lecture Attendence: 20%
• Class Discussion and Homweork: 40%
• Examination: 40%

### Structure of examination

• Single choice (15\times 1)
• Glossory explanation (5\times 5)
• Practice questions (4\times 10)
• Essay questionns (1\times 20) (around 200-250 words)

### Class Discussion and Homework

Class Discussion

Mind the questions as they may occur in the final exam.

Homework

They also might be questions on the final exam.

## Why Study Microeconomics?

Joan Robinson (UK economist, 1903-1983)

The purpose of studying economics is … to learn how to avoid being deceived by economists.

# Preliminaries

• Microeconomics: behavior of individual economic units

Consumers, Workers, Factories (Companies), and how these units interact with each other.

• Macroeconomics: aggregate economic variables

Cared by governments. Came out after the 1929 Depression.

## The Themes of Microeconomics

Constraint Example: Time is a constraint for every people.

• Consumers: limited incomes (spend now or in the future + what to buy)
GDP: inside the country (income can be difficult to check, so we normally use consumption as the criterion)
GNP: about the nationality (excluding foreign companies, including foreign investment)

consumption: C+G+I+Ex
Consumers, Governments, Investments, export – import

• Workers: whether and when, which job, how many hours

There is a branch of "Labour Economy"

• Firms: the kinds of products that they can produce, and the resources available to produce them

Hunger marketing are due to lack of resources.

### Prices and markets

Microeconomics describes how prices are determined.

In a centrally planned economy,

• prices are set by the government.
• how is the efficiency?

In a market economy,

• prices are determined by the interactions of consumers, workers, and firms. (Adam Smith’s "invisible hand")
• These interactions occur in markets – collection of buyers and sellers that together determine the price of a good.
• Assumption under this? Rationality, Complete information, Complete competition

Market Power: Monopoly (one single buyer, really rare)

### Theories and models

In economics, explanation and prediction are based on theories.
Theories are developed to explain observed phenomena in terms of a set of basic rules and assumptions.

A model is a mathematical representation, based on economic theory,
of a firm, a market, or some other entity.

Example:
Trade volume between two countries depends on two basic factors:

• GDP of the two countries (the greater GDP the larger trade volume);
• Distance between the two countries (the longer distance the less trade volume)
• T_{ij} = (A \times Y_i\times Y_j )/D_{ij}

### Positive versus Normative Analysis

• Positive analysis: Analysis describing relationships of cause and effect/consequences.
• Normative analysis: Analysis examining questions of what ought to be.

## What Is a Market?

### Market Definition – The Extent of a Market

• Market: Collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products.
• Extent of a market: Boundaries of a market, both geographical and in terms of range of products produced and sold within it.
• Question: Can you provide some examples of boundaries of a market?

### Competitive versus Noncompetitive Markets

• Perfectly competitive market: Market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.

### Market Price

• Market price: Price prevailing in a competitive market.

## Real versus Nominal Prices

• Nominal price: Absolute price of a good, unadjusted for inflation.

• Real price: Price of a good relative to an aggregate measure of prices; price adjusted for inflation.

• Consumer Price Index: Measure of the aggregate price level.

• Month on Month (MoM)
• Year on Year (YoY)
• Producer Price Index: Measure of the aggregate price level for intermediate products and wholesale goods.

## Why Study Microeconomics?

• It is in our daily life.
• Make future career choices.
• Comsumer theory (dimishing maginal utility)
• Production theory (the power of innovation)
• Externalities (public goods)

Course delivered in 2021/07/06, SEU.