Econ306- Outlines

Econ306- Outlines - ECON306Chapter2 01:07 THE THEME OF...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON306 Chapter 2 01:07 THE THEME OF MICROECOMICS Microeconomics is about limits. Microeconomics is also about ways to make the most of these limits. More precisely, it is about the allocation of scarce resources. o For example, how consumers can best allocate their limited incomes to the various goods and services available for purchase. It explains how workers can best allocate their time to labor instead of leisure, or to one job instead of another. In a planned economy (such as Cuba) these allocation decisions are made mostly by the government. Firms are told what to produce and how much to produce. Trade-Offs Describes the trade-offs that consumers, workers, and firms face, and shows how these trade-offs are best made. Consumers: have limited incomes, which can be spent on a wide variety of goods and services, or saved for the future. o Consumer theory describes how consumers, based on their preferences, maximize their well-being by trading off with the purchase of more of some goods for the purchase of less of others. Workers: face constraints and make trade-offs. o People must decide whether and when to end to enter the workforce. o Workers face trade-offs in their choice of employment. o Workers must sometimes decide how many hours per week they wish to work, thereby trading off labor for leisure. Firms: Face limits in terms of the kinds of products that they can produce, and the resources available to produce them. o Example, General Motors is very good at producing cars and trucks, but it does not have the ability to produce airplanes, computers, or pharmaceuticals. Given these constraints, GM must decide how many of each type of vehicle to produce. If it wants to produce a larger total number of cars and trucks next year or the year after, it must decide whether to hire more workers, build new factories or do both. The theory of the firm describes how these trade-offs can best be made. Prices and Markets All of the trade-offs described above are based on the prices faced by consumers, workers or firms. o For example, a consumer trades off beef for chicken based partly on his or her preference for each one, but also on their prices. o A firm decides whether to hire more workers or purchase more machines based in part on wage rates and machine prices.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Microeconomics also describes how prices are determined. o In a centrally planned economy, prices are set by the government. o In a market economy prices are determined by the interactions of consumers, workers and firm. These interactions occur in MARKETS- collections of buyers and sellers that together determine the price of a good. Example: in an automobile market car prices are affected by competition among Ford, General Motors, Toyota and other manufacturers, and also by the demands of the consumers. Theories and Models
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/15/2010 for the course ECON 306 taught by Professor Cramton during the Spring '06 term at Maryland.

Page1 / 24

Econ306- Outlines - ECON306Chapter2 01:07 THE THEME OF...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online