preliminaries
DESCRIPTION
Basic concepts for understanding MicroeconomicsTRANSCRIPT
Economics Defined
“Economics is the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals.”
Samuelson and Nordhaus, Economics,2009.
“Economics is the study of mankind in the ordinary business life.”
Alfred Marshall, Principles of Economics, 1890.
Subfields
Microeconomics is the branch of economics concerned with the behavior of individual entities such as households, firms and markets.
Macroeconomics is concerned with the overall performance of the economy.
Problems in Microeconomics
Market forces of supply and demand
Consumer Choice
Firm Behavior and Organization
Market structure
Social welfare : balancing efficiency and equality
Design of tax system
Management of public goods and common resources
Problems in Macroeconomics
National Income
Economic growth and development
Inflation
Unemployment
Government budget deficit
Exchange rate
Interest rate and capital flow
Mankiw’s Basic Principles
Trade-offs People face trade-offs.
Opportunity cost The cost of something is what you give up to get it.
Mankiw’s Basic Principles
Marginal analysis Rational people think at the margins.
Incentives People respond to incentives.
Mankiw’s Basic Principles
Trade Trade can make everyone better off.
Efficiency of Markets Markets are usually a good way to organize
economic activity.
Mankiw’s Basic Principles
Government intervention Government can sometimes improve market
outcomes.