Welcome to ECO 284 Principles of Microeconomics

1. Welcome to ECO 284Principles of Microeconomics Please pick up a copy of the syllabus

2. Prerequisite • Eligible to take MAT 110 or a higher course • If you lack the prerequisite, contact me as soon as possible! • You are requested to drop the class if you lack the prerequisite or an approved waiver. • Sign the sheet during one of the first three classes if you have the prerequisite or a waiver.

3. The Basics of Economics • What is Economics? • A large subject — How do we approach it? • Heilbroner’s analogy: think of the economy as an unexplored continent.

4. Enter the continent on foot... • and study at close range the persons and firms whose activities (when combined) form the economy. • Microeconomics is the study of how consumers, firms, and resource owners interact in individual markets.

5. Fly over the continent... • and note the characteristics of the economy as a whole. • Macroeconomics is the study of the entire economy.

6. A third approach... • It focuses first on how the "economic continent" came to be there in the first place, and on what forces have shaped and continue to shape its landscape. • This approach is known as economic history.

7. Primarily Microeconomics • economic history adds perspective on contemporary problems such as ... • de-regulation, • environmental degradation, • international trade, • monopoly power, and • welfare reform.

8. History of Economic Thought • The study of how economic ideas and philosophies have evolved • Keynes suggested that these ideas have had a powerful influence on human history.

9. What is Economics? • Heilbroner: “Economics is the process of providing for the material well-being of society.” • However, because many goods are scarce, society must make choices. • Thus Economics is often defined as the study of how scarce resources are best allocated among competing ends.

10. The Setting • The human body, by itself, is not a highly efficient mechanism for survival. • Each 100 calories eaten delivers about 20 calories of mechanical energy. • That amount of work must first be applied to sustain the human. • Only what is left over can be used to build a civilization.

11. The Problem • Scarcity Time Money Goods Food • Survival

12. The individual and society • Economic history must focus on the central problem of survival and on how humans have solved that problem.

13. The division of labor • We survive because the tasks we cannot do for ourselves are done for us by an army of others. • Enhances our capacity a thousand-fold. • With this gain comes a degree of risk. • Our well-being depends on others.

14. Economics and scarcity • Is human nature or mother nature the source of most of our economic problems? • The scarcity of nature's resources. • Our desires and wants.

15. Economics and Society • What are the tasks which social organization must perform to bring human nature into harness? • A society must assure the production of enough goods for its own survival. • Society must also distribute these goods so that more production can take place.

16. Three basic questions • What to produce? • How to produce it? and • For Whom?

17. Economizing • The production problem, in part, is one of applying technical skills to the resources at hand, avoiding waste, and using effort as efficiently as possible.

18. Mobilizing effort • Before society may concern itself about using its resources efficiently, it must first devise social institutions that will mobilize human effort for production

19. Failure to mobilize effort • The Great Depression. • The poorest nations. • Thus the production problem is in part a physical and technical problem, and in part a challenge to social organization.

20. Allocating effort • Putting people to work is the first step in solving the production problem. But they must be put to work at the right tasks. • Failures emphasize that a society must not only produce goods, it must produce the right goods.

21. Distributing output • to assure continued production • Distributive failures need not entail a total economic collapse. • Societies can exist with badly distorted distributive efforts. • Problems in distribution most often reveal themselves as social and political unrest. • A society must sustain and motivate its workers.

22. Three solutions • Tradition • Command • Markets

23. Tradition. • Workable • But static • Tradition solves the economic problem, • at the cost of economic progress. • What is Tradition’s role in the US economy?

24. Command • Also workable • Often superimposed on a traditional society • An effective tool for economic change • What is the role of command in the US economy? • Is it moral?

25. The Market • Because we live in a largely market-run society, we are apt to take for granted the puzzling nature of the market solution to the economic problem. • Quote from R. L. Heilbroner's The Economic Problem.

26. Perplexed? • The perplexity which the market idea would rouse in the mind of someone unacquainted with it may serve to increase our own wonderment in the most sophisticated and interesting of all economic mechanisms.