110lec1 - ECON 110 ECON Introductory Introductory...

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Unformatted text preview: ECON 110 ECON Introductory Introductory Microeconomics Microeconomics Lecture 1 Spring, 2009 William Chow Highlights Highlights Introduction to Course Economics – What is it about? Important concepts Production Possibility Frontier What is Economics? What Decision making is a practical matter we need to deal with on a daily basis. We are confronted by the dilemma of limited resources and unlimited wants. Without this dilemma, we can achieve what we desire at no cost and there is no need for decision making. What is Economics? What Economics is the study of how people make their choices to deal with scarcity. Not all decisions made in real life are rational or sensible, but we focus on how people make rational choices. All these analyses will be from the perspective of private individuals – consumers, and business entities – firms. Useful Tools & Concepts Useful Learn to use Diagrams – ideas can be concisely presented, e.g. market interactions. Meaning of the slope of a line or curve – this indicates relationship that may exist. Ceteris paribus ­ (meaning) other things being equal – very often, we do piecewise analysis. Association vs. Causation – not necessarily the same. Useful Tools & Concepts Useful Fallacy of composition ­ what is true for parts may not be true for the whole. A positive statement ­ one that does not depend on subjective judgment. E.g. The fiscal deficit forced the government to cut back education funding – this is something that occurs as a fact, regardless of whether it should be the case or not. Useful Tools & Concepts Useful A normative statement ­ one that does depend on subjective judgment. E.g. The government should help teachers that have been lay off due to redundancy. Opportunity Cost ­ this is the value of the best alternative forgone when using a resource. It measures the cost of trading off two resources. Useful Tools & Concepts Useful The Margin ­ very often, the decision one has to make is not ''all­or­nothing'' but rather ''to what extent''. The fact that choices are made at the margin forms the basis of rational economic behavior. This concerns the measurement of the incremental value (or cost) of something. E.g. The choice between 1 and 2 hamburgers when you are hungry. The Production Possibility Frontier (PPF) (PPF) Recent Case: China US Trade Dispute. U.S. textile producers have made clear they want tighter restrictions on imports of Chinese­made shirts, pants, and other clothing, that have surged since global textile quotas ended on January 1. The Production Possibility Frontier (PPF) (PPF) In May, the United States placed temporary caps of seven­point­five­ percent growth a year on imports of some Chinese textiles. China's official Xinhua News Agency quoted official figures as saying almost all those caps have been reached. The Production Possibility Frontier (PPF) (PPF) Beijing wants to see the caps lifted or at least loosened up so more Chinese textiles can reach the United States. Chinese officials argue that U.S. manufacturers had decades to prepare for the end of the global trade quotas. The Production Possibility Frontier (PPF) (PPF) Societies / countries are endowed with different amount of these resources which can be used to produce goods and services people consume (to satisfy their wants). The limitation in resources translates into limits into the amount of goods that we can produce. The Production Possibility Frontier (PPF) (PPF) 1. 2. 3. 4. Limited resources can be categorized into 4 types: Labor Land Capital, incl. Human Capital Entrepreneurship These are called factors of production. The Production Possibility Frontier (PPF) (PPF) The amounts of goods and services that could be produced, given the amount of factors of production endowed, are the production possibilities of the economy. PPF is the boundary that separates the region of achievable production and the unachievable. It shows all combinations of goods and services that can be produced given that resources endowed are fully utilized and given the existing state of technology. ...
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