Ch1-slides - Chapter One Analyzing Economic Problems...

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Analyzing Economic Problems Chapter One Chapter One
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Example: How to Reduce Global Warming Efficiently Example: How to Reduce Global Warming Efficiently The government try to reduce pollution, but it does not know how costly for each individual firm to reduce production. EU’s cap-and-trade system: Each firm receives a quota or a cap. Firms are free to trade these permits in an open market. Lower cost firms will sell quotas and higher cost firms will buy quotas.
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Analysis of these issues requires Microeconomic tools and the key players below need to know something about Microeconomics. ¾ Policy Makers ¾ Managers ¾ Union Leaders ¾ Lenders ¾ Business Owners Who Should Study Microeconomics? Chapter One
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Microeconomics Defined Microeconomics is the study of the economic behavior of individual economic decision- makers such as consumers, workers, firms or managers. This study involves both the behavior of these economic agents on their own and the way their behavior interacts to form larger units, such as markets. Chapter One
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The Science of Constrained Choice The Science of Constrained Choice Chapter One Human beings have unlimited wants. But Resources are scarce . • More butters, less cannons. • More working time, less leisure activities. • More consumption today, less saving for tomorrow.
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Key Societal Questions Societies must answer these questions that relate to microeconomics: 1. What goods and services will be produced and in what quantities 2. Who will produces these services and how will they produce them 3. Who will receive these goods and services and how will they get them Chapter One
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Two Ways to Allocate Scarce Two Ways to Allocate Scarce Resources Resources Highly centralized : ex Soviet Union Need to collect tremendous amount of information. Decentralized market system : USA and Western Europe Prices adjust to ensure efficient allocation of resources.
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Microeconomic Modeling 9 Resemble Reality 9 Be Understandable Models are like roadmaps – they simplify the process and facilitate understanding of complex concepts.
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Ch1-slides - Chapter One Analyzing Economic Problems...

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