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Introduction to Microeconomics
• Textbook: John Sloman, Economics, 8th edition
• Lecturer: Dr. Claudia Jefferies
• Claudia’s office: D329
• Claudia’s e- mail address:
Claudia.jefferies.1@city.ac.uk
WHAT IS ECONOMICS?
• The study of how we deal with scarcity!
• Scarcity principle – having more of one good
thing usually means having less of another
• Every choice is a trade-off
• Resources are limited and wants are unlimited!
• What resources?
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Factors of Production
• Land and natural resources
• Labor
• Capital
• These are inputs into the production process.
CHOICES/TRADE-OFFS
• As individuals, households and society we
have to make tough choices
– What?
– How?
– How much?
– For Whom?
WHAT IS ECONOMICS?
• It is the study of human behaviour when
confronted with scarcity of resources
• What is the best way for society to manage its
scarce resources?
• Subject is often split into
• Microeconomics: Concerned with individual
parts of the economy – consumers, firms in
particular markets
• Macroeconomics: Concerned with the economy
as a whole
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What do Economists Study?
• Macroeconomic issues
– growth
– unemployment
– inflation
– balance of payments problems
– cyclical fluctuations
What do Economists Study?
• Microeconomic issues
– choices: what, how and for whom
– the concept of opportunity cost
– rational economic decision making
• marginal costs and marginal benefits
• MC > MB do more
• MC > MB do less
– microeconomic objectives
• efficiency
• equity
MAKING CHOICES
• What is the best way of making these decisions
for individuals, households and society?
• Economics tries to find answers to the previous
question by comparing the benefits and the
costs.
• It sounds so simple but it may not be that
simple.
• When economists say cost, they mean
opportunity cost .
• Focus on marginal benefits and costs
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OPPORTUNITY COST
• Easy to define, but often it is surprisingly
difficult to apply.
• Value of the next best alternative that must be
forgone.
OPPORTUNITY COST
Forgone benefit is a cost
of the decision
(the “good thing you give
up)
Decision
Forgone costs is a benefit
(the ‘bad’ thing you avoid)
Some Key Ideas
• Don’t ignore the implicit costs – no actual
transfer of money
• Think at the margin – don’t focus on the
average
• Ignore sunk costs – very counter-intuitive
• Rational Choice: Weighing up marginal costs
and marginal benefits before making a decision.
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