Econ 281 Chapter1 - Econ 281 Intermediate Microeconomics...

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Econ 281 Intermediate Microeconomics Consumer Behavior Theory of Production and Cost Various Market Structures Lorne Priemaza, M.A. [email protected] Various material courtesy of Katharine Rockette and Wiley & Sons INC.
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Chapter 1 What is economics? Microeconomics and Macroeconomics Optimization Positive and Normative Analysis
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What Is Economics? Economics is the science that deals  with the allocation of limited resources  to satisfy unlimited wants. Limited Resources Choice s Unlimited Wants Outcome
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Microeconomics and Macroeconomics Microeconomics -from the Greek  mikros  meaning small -studies economic behavior of individual  decision makers (people, firms, etc.) -What price should Mike’s Melons set? -How much  House  should Kim watch? -How does eating melons while watching  House  affect Jon’s utility?
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Microeconomics and Macroeconomics Macroeconomics -from the Greek  makros  meaning large -studies aggregate economic behavior  (nation, world, business cycles, etc.) -What should the tax on melons be? -How do tv shows such as  House  affect  productivity and unemployment? -How does melon and tv demand  fluctuate?
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Economics and Models “Economists do it with models.” -Life is too complicated for an economist  to analyze all at once -In order to analyze one aspect of life,  economists build a simplified model to  represent that aspect of life -The results of the model are then tested  against real life -Models require assumptions
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Economics and Assumptions “Assume there’s a can opener!” -Every economic model relies on  assumptions (much like a house relies  on foundations) -ie: Assume people are rational;  assume firm A understands people’s  tastes -If the assumptions are invalid, the model  suffers -ie: Assume all students read the text
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Exogenous and Endogenous 
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