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CH 1-2 - What is Economics, The Economic Problem

# CH 1-2 - What is Economics, The Economic Problem - Ch 1 2...

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Ch. 1 & 2 Ch. 1 & 2 What is economics? What is economics? The economic problem The economic problem Prof. Olivier Giovannoni 304K: Introduction to Microeconomics

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Lectures are not repetitions word for word of the textbook. The tests are based on what is in - the textbook - the PPT slides - the lectures. Ch. 1 – What is Economics? 2
GRAPHS GRAPHS “economists’ representations” Ch. 1 – What is Economics? 3

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Lines Lines and slopes and slopes POSITIVE slope NEGATIVE slope y y x x Straight line equation: y = a . x + b b b Ch. 1 – What is Economics? 4
Slopes (cont.) Slopes (cont.) Slope “ a ” = change in y divided by change in x a slope can be any value in and slope zero, in particular, means that the graph is flat. We are then at a minimum or a maximum. We say that the curve is perfectly elastic. slope "a" y x x = ] ; [ - + a>0: increasing function a<0: decreasing function Ch. 1 – What is Economics? 5

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y = a . x + b The b coefficient is called the y-intercept . A change in b does not change the slope but generates a parallel move of the curve/line. y x b Ch. 1 – What is Economics? 6
DEFINITIONS DEFINITIONS “economists’ words” Ch. 1 – What is Economics? 7

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Our economy is an economy of exchange (c.f. real GDP graphs, “growing exchange”). To exchange we need to produce and to produce we need: Natural resources (like land) rent Capital (money and machines) interest …and entrepreneurs profit Labor (workers) wage Those are called factors of production (in green are the rewards of those factors) . Ch. 1 – What is Economics? 8
2 types of economics 2 types of economics 1- MACRO economics studies the performance of a country, or group of countries, by concentrating on broad issues (inflation, unemployment, growth, poverty, crises, the causes and effects of globalization, technology, the environment…). Has historical, sociological and political dimensions. Modern macro developed in the UK in the 1930s. Ch. 1 – What is Economics? 9

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2- MICRO economics is the study the individuals (consumers, businesses), their actions (choices and production) and their interactions (the markets… and the gov’t). Predates MACRO (1776, in the UK as well) Some examples of MICRO questions: The market shares of companies X and Y, Consumers’ preferences (i.e. for flat screen TVs) The wage costs in company Z The market(s) for HD-DVD vs. Blu-ray The effect of taxes, and gov’t in general Ch. 1 – What is Economics? 10
Micro and macro as often seen as opposed theories, especially on special issues like the government and economic policies: Micro is more business-oriented, so that the element of study is the individual (the consumer behavior), the firm, the market, etc… In general microeconomists want to unleash the forces of markets with lower regulation and lower taxes and lower government.

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CH 1-2 - What is Economics, The Economic Problem - Ch 1 2...

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