Lecture 1

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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

Trade-Offs (choices/options) under constraints

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.

Commodity Market

Exchange

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.

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