Economics is a branch of the social sciences. The two sub-domains of economics are Microeconomics and Macroeconomics.
Microeconomics focuses on individual actions of sellers (producers) and buyers (consumers) and how those actions have consequences for the availability, distribution, and utilizati...
Economics is a branch of the social sciences. The two sub-domains of economics
are Microeconomics and Macroeconomics.
Microeconomics focuses on individual actions of sellers (producers) and buyers
(consumers) and how those actions have consequences for the availability, distribution, and
utilization of scarce resources.
Why do different goods and services have different prices? How can individuals make more
productive and efficient decisions? How can individuals cooperate with each other for the
common good? These are some of the questions that microeconomics tries to answer.
When we refer to “individual” action, we are referring to a variety of actors that in
microeconomic terms can be referred to as sellers (producers) and buyers (consumers). These
actors influence the supply of and demand for goods and services. The means for achieving
coordination are generally money and interest rates.
Microeconomics can be considered a normative science. It does not prescribe a course of action.
Rather, it tries to explain what might happen as a result of certain changes. For example, if the
supply of crude oil decreases, microeconomics suggests that the price of gasoline may increase.
At a certain level, it may even suggest that buyers will buy less gasoline.
Overview
Microeconomics also explains what happens at the level of the firm. When Yahoo’s e-mail
database was reported to have been hacked, the company's stock price fell. Suppose the
minimum wage is raised. Microeconomics would suggest that fast food outlets may hire fewer
people to serve at the counters.
,BMAL 590 ALC 11 Microeconomics
Microeconomics has two main schools or streams of thought. One school is the general
equilibrium theory (introduced by Leon Walras in 1874) and partial equilibrium
theory (introduced by Alfred Marshall in 1890). This school of thought believes in developing
measurable hypotheses related to economic events, and subjecting the hypotheses to empirical
testing to determine which of the hypotheses work best. Since it is difficult to replicate tests,
economists make several assumptions such as infinite sellers and buyers, perfect knowledge,
homogeneous goods and services, and static relationships to arrive at solutions.
The competing school of thought, generally attributed to the Austrian school, argues that the
equilibrium theories are flawed and unrealistic. The Austrian school acknowledges
imperfections and heterogeneity and tries to explain how economic incentives might facilitate
individuals overcoming the problems posed by uncertainty and ignorance. Thus, the Austrian
school proposes that markets exist precisely because people have incomplete knowledge,
differing preferences, and other imperfections.
Course Sections and Subsections
1. Scarcity, Choice, & Opportunity Cost
a. Scarcity
b. Choice
c. Trade-offs
d. Opportunity Cost
e. Thinking At the Margins
f. Incentives
2. Supply & Demand
a. Markets
b. Law of Demand
c. Market Demand vs Individual Demand
d. Change in Demand vs Change in Quantity Demanded
e. Law of Supply
f. Market Supply vs Individual Supply
g. Change in Supply vs Change in Quantity Supplied
h. Shifts in Both Supply & Demand
,BMAL 590 ALC 11 Microeconomics
3. Elasticity
a. Price Elasticity of Demand
b. Classifications of Price Elasticity of Demand
c. Total Revenue vs Price
d. Price Elasticity of Supply
e. Income Elasticity of Demand
f. Cross-Price Elasticity of Demand
4. Production & Costs
a. Price Elasticity of Demand
b. Profit Maximization – Marginal Analysis
c. Accounting Profit vs Economic Profit
d. Production Function and Marginal Productivity
e. Production Costs and Cost Curves
f. Isoquants
g. Scale
h. Cost Curve Shifts
Learning Outcomes
At the conclusion of this course, students will be able to:
1. Understand scarcity.
2. Understand choice and how it is linked to scarcity.
3. Understand why people make trade-offs.
4. Understand opportunity cost.
5. Understand how rational people make decisions at the margins.
6. Understand incentives.
7. Understand the role of supply and demand in economics.
8. Understand the concept of elasticity in its various forms.
, BMAL 590 ALC 11 Microeconomics
Section 1
Scarcity, Choice, & Opportunity
Cost
Note: Due to their importance in both fields of economics, the Scarcity, Choice, & Opportunity
Cost section and the Supply & Demand section are covered in both the microeconomics and the
macroeconomics courses. However, the examples used are different for each course and so are
the test questions. So, if you are seeing the material for a second time, you will see the same
principles discussed but within the context of the particular course.
Next Page
Scarcity
Scarcity refers to the limited nature of society’s resources.
People have unlimited wants and needs but there are limited resources so all human demands
cannot be satisfied.
Scarcity limits us both as individuals and as a society.
• As individuals, limited income (and time and ability) keep us from having and doing everything
we would like.
• As a society, limited resources (such as manpower, machinery, and natural resources) constrain
the amount of goods and services that can be produced.
Because the resources immediately available for use are limited, people must
make choices about resource use
Goods and services that complement each other have a cross elasticity of
demand that is negative
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