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Lecture # 01 Introduction Lecturer: Martin Paredes

Lecture # 01 Introduction Lecturer: Martin Paredes. Outline. Definition of Microeconomics Who Should Study Microeconomics? Course Information Microeconomic Modeling Elements of models Solving the models. Definition of Microeconomics.

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Lecture # 01 Introduction Lecturer: Martin Paredes

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  1. Lecture # 01 Introduction Lecturer: Martin Paredes

  2. Outline • Definition of Microeconomics • Who Should Study Microeconomics? • Course Information • Microeconomic Modeling • Elements of models • Solving the models

  3. Definition of Microeconomics • Microeconomics studies economic behavior of individual economic decision-makers • E.g.: consumers, workers, firms, managers. • This study involves: • The behavior of these economic agents on their own • The way their behavior interacts to form larger units, such as markets.

  4. Who Should Study Microeconomics? Example: The Railroad Industry in the US 74.9% of all freight, 1929 39.8% of all freight, 1970 1970’s: poor profits, bankruptcies, inability to invest 1980’s: loosened regulation and union rules improved profitability

  5. Who Should Study Microeconomics? • Analysis of this issue requires Microeconomic tools. • Who are the actors who need to know something about Microeconomics? • Managers • Union Leaders / Workers • Lenders • Policy Makers • …and beyond!

  6. Course Information • Main (required) textbook: David Besanko & Ronald Braeutigam, Microeconomics John Wiley & Sons, 2nd Ed., 2005. • Ancillaries: • Study Guide • APLIA: Online resources and problem sets.

  7. Course Information • Alternative textbooks (“at your own risk”) • B. Curtis Eaton, Diane Eaton, & Douglas Allen, Microeconomics: Theory With Applications, Prentice Hall, 6th Edition, 2004. • Robert Pyndick & Daniel Rubinfeld, Microeconomics Prentice Hall, 6th Edition, 2005. • Andrew Schotter, Microeconomics: a Modern Approach, Addison Wesley, 3rd Edition, 2001. • Hal Varian, Intermediate Microeconomics: a Modern Approach, W.W. Norton, 6th Edition, 2006.

  8. Course Information • Course Website: http://www.tcd.ie/Economics/staff/paredesm/~EC2010

  9. Course Information • Lecture Meetings • Tuesdays from 10:00 AM to 11:00 AM • Wednesdays from 5:00 PM to 6:00 PM • Location: Arts building, room 1008 • Lecture from January 9th to be rescheduled after Reading Week

  10. Course Information • Class Meetings

  11. Course Information • Office Hours - Martin Paredes: • Mondays from 3:00 PM to 4:00 PM • Thursdays from 11:30 AM to 12:30 PM • Office: Arts Building, room 3012

  12. Course Information • Office Hours – Teaching Assistants: • Marta Zieba: Mondays, 11:00 AM to 1:00 PM • Padraig Flynn: Fridays, 10:00 AM to 12:00 PM • Office: Arts Building, room 3002

  13. Course Information • Course Assessment: Two Examinations. • Hilary Term Test: 20% • Final Exam: 60% • Several homeworks to be assigned during the semester on a weekly basis

  14. Course Information • The Final Exam includes both Macro & Micro in equal proportions • Five questions in Micro: • One compulsory question • Answer two out of the remaining four. • Five questions in Macro: • One compulsory question • Answer two out of the remaining four. • Answer a total of 6 questions

  15. Course Outline 1. Introduction Ch. 1. 2. Demand and Supply Ch. 2. 3. Consumer Theory Ch. 3, 4 & 5. 4. Production and Cost Theory Ch. 6, 7 & 8.

  16. Course Outline 5. Perfect Competition Ch. 9 & 10. 6. Monopoly Ch. 11 & 12. 7. Imperfect Competition, Game Theory and Strategic Behavior Ch. 13 & 14 8. Risk and Information Ch. 15 9. General Equilibrium Theory Ch. 16 10. Externalities and Public Goods Ch. 17

  17. Microeconomic Modeling • Models are simplifications…like maps • Resemble reality • Understandable • Appropriate scale (not all details)

  18. Example: World-wide market for unprocessed coffee beans, December, 1997 Price per pound Supply (P,W) Quantity, pounds

  19. Example: World-wide market for unprocessed coffee beans, December, 1997 Price per pound Supply (P,W) Demand (P,I) Quantity, pounds

  20. Microeconomic Modeling • Elements of Models • Need to specify: • Choices/Alternatives • Assumptions

  21. Exogenous and Endogenous Variables • Definition: • Variables that have values that are taken as given in the analysis are exogenous variables. • Variables that have values that are determined as a result of the workings of the model are endogenous variables.

  22. Opportunity Cost Definition: The Opportunity Cost of a resource is the value of that resource in its best alternative use. Example: €100K in facilities yields €800K in revenue €100K in R&D yields €1M revenue  Opportunity cost of investing in facilities = €1M  Opportunity cost if investing in R&D = €800K Note: Opportunity cost depends on how we specify alternatives.

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