ECON10010-Principles of Microeconomics

CORE

Curriculum Open-access Resources in Economics

Aims of CORE

Make econ more relevant to pressing social problems, focus on climate change and equality, attempt to avoid western-centric perspective

Focus of CORE

Heavier on empirical data than abstract models

Intention of CORE

Foster inclusion of women in science of economics

In CORE, greater focus placed on

History and how it led to current economic circumstances, role of colonization and global equality

Distinction between micro and macro in CORE

Initially less distinction with CORE, but thought to be more in CORE 2.0

Economics

Social science of human behaviour

Economics relates to

Choices in response to scarcity

Word economics derived from

Greek word meaning household management

Economics applies to

Both market and non-market exchange of goods and services

Economics is not

Business or finance

Aim in economics

Societal welfare maximization

Typically considered in micro

Decisions at level of individual or firm

Economic growth in the Long Run

Output remained static for much of human history but there was rapid increase observed from 1800s onwards which was largely driven by technical innovation

Thomas Robert Malthus

Priest and early economist known for pessimistic view on population growth and limits it placed on living standards, known as Malthusian trap

Considered in Malthusian Model

Agriculture-only model

Land in Malthusian Model

Assumed to be fixed in supply

Technical innovation in Malthusian Model

Can increase agricultural output

Improved output in Malthusian Model

Leads to population growth

Initial gains per output per head in Malthusian Model

Lost due to population growth

Output in Malthusian Model

Can increase over time, but per capita living standards do not

Evidence supporting Malthusian View

Plagues reduced population sizes and improved wages and living standards and wages, population growth erodes gains, innovation improves output, population growth again erodes gains

Industrialisation, Carbon Emissions and Climate Change

Industrialisation results in large increase in CO2 emissions, results in increase in global temperatures, will damage earth’s zones of habitation and cultivation

Permitted by technological innovation

Greater production

Involved in technological innovation

Mechanisation, an increase in capital inputs vs labour

Technological innovation change in application and specialisation of labour

From artisans to factory workers

Involved in continuous technological revolution

International trade, colonisation and slavery ex. cotton and sugar are raw commodities both initially produced by slaves

Continuous technological revolution relies on

Geologically stored sources of energy ex. coal and later oil to replace animal drawn vehicles and wood burning

Industrial revolution

Fundamentally breaks constraints of Malthusian trap through ongoing and sustained productivity growth and eventually, falling fertility

People make decisions

Based on costs and benefit to them, applies to both explicit financial costs and benefits and non-financial costs and benefits

Informs our understanding of economic costs

Combination of explicit costs and benefits and non-financial costs and benefits

Net benefit

Value of something net of costs of availing of it

Concert example of net benefit

Value of enjoyment - Cost of ticket

Babysitting example as alternative to concert example

Payment received - Value of effort involved

Optimal decision when choosing between two options after calculating net benefit

Option with highest net benefit value

Often included in choices

Mutually exclusive options

Reservation option

Your next best option after most preferred

When you choose one option

You forego the reservation option

Name given to value of reservation option

Opportunity cost

Economic cost

Direct costs + opportunity costs

Common example of opportunity cost

Earnings foregone

Difference in net benefit between two options

Equals benefit minus opportunity cost

Difference between net benefit of option chosen and its opportunity cost

Gives economic rent

Positive economic rent

Means course of action is beneficial

Rent seeking behaviour in economic context

Economic actors seek to maximise their rents

Specialisation in production

Involved in industrial revolution

3 primary reasons for which specialisation arises

Learning by doing, difference in ability, economies of scale

Learning by doing

By doing more of one thing, the better we are at it

Difference in ability

Some people and places are better at producing certain things

Economies of scale

Larger scale production can be more efficient

Levels at which specialisation applies

Individuals, firms and countries

Absolute advantage

Those with greater absolute productive ability

Comparative advantage

Those with greater relative productive ability between different goods

If producers cannot trade goods

They must be self sufficient, each must produce what they want to consume

Consumers typically

Want to consume a mix of goods