of Principle Microeconomics
Dr. Ou Hu Webpage: www.as.ysu.edu/~ohu Office Hours:13:00-15:00, MTR and by appointment
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Chapter 1: What is Economics?
Economics the social science that studies how
people (individuals, firms, government) make choices under the condition of scarcity.
Without the problem of scarce resources, there would be no economic issues. Economics analyzes how people achieve their goals maximizing gratification, profit, and social welfare, etc. with limited resources.
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What is Economics? Economic ways of thinking Scarcity principle Cost-Benefit principle Incentive principle Comparative Advantage principle Increasing Opportunity Cost principle Efficiency principle Equilibrium principle To apply those principles in the understanding of economic issues and in the decision-making processes faced by individuals, firms, and government. 3
What is Economics?
The Principle of Scarcity
People have to face trade-offs when their boundless desires meet limited resources. To choose one more unit of A means to give up a certain amount of B.
The Cost-Benefit Principle
One chooses one more unit of A only if the benefit of doing so is at least as large as its cost. Example:
Gas station X vs. Gas station Y Speeding to work or school
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What is Economics?
Opportunity Cost (of an activity)
The value of what must be given up most unwillingly in order to undertake the activity;
Examples:
the oppt. cost of going to college; the oppt. of cost investing $1000 in a stock market; the oppt. cost of watching a movie the night before the final exam of Econ 2610.
The best alternative; Explicit and implicit costs; Understanding opportunity cost helps us efficiently allocate scarce resources. 5
What is Economics?
Marginal Analysis
Marginal Cost - the increase in total cost from one additional unit of an activity.
Average cost is total cost divided by the total number of units.
Marginal Benefit the increase in total benefit from on additional unit of an activity.
Average benefit is total benefit divided by the total number of units.
An activity will be undertaken only if its marginal benefit is at least as large as its marginal cost. 6
What is Economics?
Marginal Analysis: NASA Space Shuttle
# of Launches 0 1 2 3 4 5 Total Cost ($B) $0 $3 $7 $12 $20 $32 Average Cost ($B/launch) $0 $3 $3.5 $4 ...