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Microeconomics • Please provide the following information on the 3 X 5 card: • Name • Phone • Email • Something you want the class to know about you. Microeconomics Introductions Definitions • Economics –Is the study of how people make choices. Definitions • Why do we have to make choices? • We must choose because our wants are unlimited but our resources are limited. Limited Resources the factors of production • 1. Natural resources (land) • 2. Labor or human effort • 3. Physical Capital machines used to make other products • 4. Human Capital skills and abilities • 5. Entrepreneurial Ability Scarcity • Term used to describe limited resources • Time can also be scarce, and so can money. Microeconomics • Is the study of how individuals make choices • We will study how choices are made by people in their roles as consumers, business leaders, and citizens. Ceteris paribus • Latin for “all things being equal”. • In a graph or example, ceteris paribus means that all other variables are fixed. Market • Where buyers and sellers exchange things. • Markets are not necessarily physical places anymore. E-bay is a cyber-market. Invisible Hand • Adam Smith in the Wealth of Nations offered the idea that individuals acting in a market to serve their own interest, frequently promote the best interest of society. Frequently, not always, as the recent business scandals show. Production Possibilities Curves • With a given amount of resources we can only produce a limited amount of goods or services. • The graph on the board shows the combinations of spaghetti or lasagna dinners served. Opportunity Cost • The value of the choice given up. • The 1965 Corvair Monza Story • Opportunity Cost and the Production Possibilities Curve Marginal • Always think “extra” when you see the word “marginal” in economics • The margin of averages example on the board Supply and Demand Selling the Answers to the Test Demand • Demand is the quantity that consumers are willing and able to buy at various prices • The law of demand states that as price goes down, the quantity demanded increases. Supply • Supply is the quantity that producers are willing and able to sell at various prices. • The law of supply states that as price increases the quantity supplied will increase 6 reasons to draw an new Demand Curve • 1. Size of group • 2. Tastes of Group • 3. Expectations 6 Reasons (cont’d) • 4. Income • 5. Price of substitute good • 6. Price of complementary good 4 reasons to draw a new Supply Curve • 1. Number of producers • 2. Expectations • 3. Technology • 4. Costs of factors of production