handout 1-fall 09

handout 1-fall 09 - PRINCIPLES OF MICROECONOMICS ECON 221...

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PRINCIPLES OF MICROECONOMICS ECON 221 Fall 2009 SCARCITY: Fundamental problem in Economics In general, if any branch of trade, or any division of labor, be advantageous to the public, the freer and the more general the competition, it will always be the more so -Adam Smith: The Father of Modern Economics -Wealth of Nations Weigh your Marginal Benefits and Marginal Costs before making any decision: LECTURE NOTES: Chapters 1-4 PROFESSOR: DR. CHANDINI SANKARAN Moore School of Business University of South Carolina
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ECON 221 Sankaran Fall 2009 I NTRODUCTION T O E CONOMICS The word Economy comes from a Greek word for “one who manages a household.” It makes some sense since in the economy, we are faced with many decisions (just as a household is). Economics is the study of the economy and the behavior of people in the economy. Made up of two components: 1. Microeconomics examines the functioning of individual parts of the economy (such as single product markets or specific industries) and the behavior of individual decision making units (typically business firms, households and individual consumers). Examples of some micro topics include the study of: reasons why people want to buy more Coke (buyers are referred to as consumers), the determination of the price of gas, (we use the model of supply and demand to understand how market equilibrium prices and quantities are determined), the effect of rent control on housing in New York; impact of an increases in steel prices on the auto industry; the impact of minimum wage on the market of teenage labor etc. 2. Macroeconomics looks not at any particular part of the economy, but rather at the economy as a whole . We aggregate (add up) the microeconomics parts to come up with an overall picture. Macroeconomics has many micro counterparts. For example, rather than be concerned with changes in the price of any one good (which would be microeconomics), we would study the change in the average level of prices of all goods in the economy, or inflation/deflation (macroeconomics). Rather than focus on the quantity of a single good produced, macroeconomics is concerned with the total output of all goods and services produced by a country (Gross Domestic Product – GDP). It studies not household income but national income of a country (GDP), not individual prices (such as the price of Coke or pizza) but the overall price level of a country (inflation). It does not analyze the demand for labor in a particular industry (such as the demand of labor in the manufacturing or construction industry) but the total demand for labor in the economy (total employment). Why Study Economics? A. Economics for citizenship. 1. Most political problems have an economic aspect whether it is balancing the budget, fighting over the tax structure, welfare reform, international trade, or concern for the environment. 2.
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handout 1-fall 09 - PRINCIPLES OF MICROECONOMICS ECON 221...

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