Principles of Microeconomics: Key Concepts and Assumptions

What does the term 'Economy' originate from?

A Greek term meaning 'one who manages a household.'

What is the primary focus of Economics as a science?

The study of how scarce resources are allocated.

What distinguishes Microeconomics from Macroeconomics?

Microeconomics studies individual and business decisions, while Macroeconomics focuses on the economy as a whole.

What is the significance of market interactions in modern economies?

They are a key factor in how societies allocate scarce resources.

What is discouraged in relation to assignment completion?

Using Chat-GPT, as it may lead to low grades on exams due to lack of practice.

What is the instructor's email policy?

Emails are read between 8:00 AM and 7:00 PM, Monday to Thursday.

Where can students find PowerPoint slides for the course?

Slides are available on D2L after class.

What is the consequence of submitting copied work?

Students will face penalties as the instructor does not tolerate copying.

What is the purpose of the non-laboratory assignments?

They are based on lecture content and help prepare for Midterm and Final exams.

What is the recommended action if students have questions about EconLab assignments?

Reach out to co-instructors Judy Street or Berhanu Kebede.

What is the primary focus of microeconomics?

How people make decisions regarding demand, supply, and resource allocation.

What does macroeconomics study?

Economy-wide forces and trends such as growth rate of income, unemployment, and inflation.

What is the significance of opportunity cost in economics?

The true cost of something is its opportunity cost, which represents the value of the next best alternative forgone.

What are the four principles of individual choice in microeconomics?

1) People must make choices because resources are scarce. 2) The true cost of something is its opportunity cost. 3) Choosing 'how much' to have involves marginal comparisons. 4) People respond to incentives.

What principle explains the potential benefits of trading?

It is possible to gain from trading.

How do markets reach equilibrium according to economic principles?

Because people respond to incentives, markets move to their equilibrium.

What is the relationship between efficiency and equity in economics?

Efficiency should be pursued, but there are trade-offs between efficiency and equity.

What role does government intervention play in market efficiency?

Markets tend to be efficient, but government intervention can help improve this efficiency.

What is the first principle of economy-wide phenomena in macroeconomics?

One person's spending is another person's income.

What happens when collective spending is not aligned with firms' productive capacity?

When collective spending is below or above firms' productive capacity, it can lead to economic issues, and government intervention may help.

What is the impact of increasing an economy's productive capacity?

It leads to economic growth.

What are the classifications of productive resources?

Land, labor, capital, and entrepreneurial talent.

What constitutes labor resources in an economy?

The number of hours that a nation's workers provide.

What are capital resources?

Financial capital plus machines, equipment, buildings, etc.

What is human capital?

The education and health of a nation's workers.

How does society allocate scarce resources?

Through market forces of supply and demand and government policy.

What is an example of an opportunity cost?

If one hour of work would have earned $20, that is the opportunity cost of choosing to attend a masquerade party instead.

What is the relationship between individual choices and resource scarcity?

People must make choices because resources are scarce, leading to opportunity costs.

What is the role of incentives in economic decision-making?

People respond to incentives, which influences their choices and market outcomes.

What is the importance of marginal comparisons in economics?

Choosing 'how much' to have of a thing involves evaluating the additional benefits and costs.

What does the interaction of individuals in an economy determine?

The agreed-upon price by buyers and sellers and the quantity of units traded at that price.

What are the two main branches of economics?

Microeconomics and Macroeconomics.

What is opportunity cost?

The opportunity cost of an item or choice is what you must give up to get that item or make that choice.

What are explicit costs?

Explicit costs are money or resources paid directly to get the item or make the choice.

What are implicit costs?

Implicit costs are money or resources foregone by making the choice, often referred to as what is 'left on the table'.

In the context of switching jobs, what is an example of an explicit cost?

The increase in time commuting to the new job.

In the context of switching jobs, what is an example of an implicit cost?

The $45k from your old job, which is money foregone.

What is the economic profit of switching jobs from $45k to $50k with additional commuting costs?

Economic profit = Benefit - Costs = $50K - ($45k + cost of extra commuting) = less than $5k.

What does it mean to make marginal comparisons?

Making marginal comparisons involves evaluating the costs and benefits of getting just a little bit more of a good or service.

What is the marginal cost of hiring one worker in the burger shop example?

The marginal cost of hiring one worker is $50.

What is the marginal benefit of hiring one worker in the burger shop example?

The marginal benefit of hiring one worker is $100, derived from selling 10 extra hamburgers at $10 each.

Is it better to hire 1 worker or 0 in the burger shop example?

It is better to hire 1 worker than 0, as the marginal benefit exceeds the marginal cost.

Is it better to hire 2 workers or 1 in the burger shop example?

It is better to hire 2 workers than 1, as the marginal benefit of hiring the second worker exceeds the marginal cost.

At what point should you stop hiring additional workers in the burger shop example?

You should stop hiring additional workers at 3 workers, as hiring the fourth worker is not worth the cost.

What is an incentive?

An incentive is anything that makes a person act in a specific manner by providing an opportunity to be better off or avoid being worse off.

How can you reduce litter in public parks with a slashed hiring budget?

Consider alternative strategies such as community engagement or volunteer programs to maintain cleanliness.

How can you encourage your nephew/niece to read more?

Implement incentives such as rewards for reading achievements or creating a fun reading environment.

How might cigarette manufacturers react to the declining popularity of smoking?

Cigarette manufacturers may reduce production, increase marketing efforts, or diversify their product offerings to adapt to changing consumer preferences.

What is the total opportunity cost when considering a choice that involves a $20 item and a $10 item?

The total opportunity cost is $30, which includes both the $20 and the $10.

What principle states that people respond to incentives?

The principle that people respond to incentives is one of the four principles of individual choice.

What are the four principles of individual choice?

1) People face trade-offs, 2) The cost of something is what you give up to get it, 3) Rational people think at the margin, 4) People respond to incentives.

What is the relationship between the number of workers and hamburgers sold per hour in the burger shop example?

As the number of workers increases, the number of hamburgers made and sold per hour also increases, but at a decreasing rate.

What is the marginal benefit of hiring 2 workers compared to 1 in the burger shop example?

The marginal benefit of hiring 2 workers is $80, derived from selling 8 extra hamburgers at $10 each.

What is the significance of evaluating costs and benefits at the margin?

Evaluating costs and benefits at the margin helps determine the optimal level of production or consumption.