Intro to Microeconomics

• Lemery Colleges, Inc. offers an introduction to basic microeconomics as part of their College of Business and Management program.

Learning Objectives

• Explain the differences between macroeconomics and microeconomics
• Apply the concepts of scarcity, choice, and opportunity costs for making smart choices
• Discuss the types of factors of production
• Explain the difference between positive and normative economics

Core Concept of Economics

• Economics exists because abundance does not

Definition of Economics

• Economics comes from the Greek words "oikos" (home of household) and "nemein" (management).
• It is a social science dealing with the allocation of scarce resources to satisfy society's unlimited needs and wants

Scarcity

• Scarcity is the fundamental economic problem
• Resources are insufficient to meet objectives
• Economics would not exist without scarcity

Economics as Art and Science

• Economics is an art because it uses graphs, figures, tables, and equations to explain theories and laws
• Economics relies on assumptions to define conditions for applying theories, laws, and understanding relationships between economic variables
• Economics is a science because it involves a systematized body of knowledge where economic facts are studied and analyzed
• Economics, like science, has laws and theories tracing causal relationships between phenomena

Basic Economic Concepts

• Scarcity means limited supply
• Economic resources are categorized into land, labor, and capital, each existing in finite quantities
• Choice involves comparing alternatives
• Scarcity forces choices about which wants to satisfy
• Firms must decide what to produce based on limited capital
• Scale of preference shows a list of wants in order of importance so people yield the greatest satisfaction
• Opportunity cost is the value of the next best alternative forgone when a choice is made, implying that satisfying one want means giving up another and the "real cost" of satisfying a want
• Modern economies face fundamental economic problems due to limited resources, mainly how to allocate scarce resources to achieve maximum satisfaction
• These problems are central because other issues stem from them

Central Economic Problems

• What to Produce?: requires a selection of what should be produced and in what quantity to satisfy consumer wants using available resources
• In a market economy, buyers determine what is produced to fulfill their needs
• How to Produce?: relates to choosing the appropriate production technique to combine resources efficiently and at a minimum cost
• Using more labor and less capital is labor-intensive mode of production, while using more capital and less labor is capital-intensive mode of production
• For Whom to Produce?: address how the national product is to be distributed among members of society, including the distribution of consumer and capital goods

Factors of Production

• Land refers to all natural resources on, below, or above the earth's surface, receiving rent as payment and is described as a free gift of nature having no cost of production, generally immobile with a fixed supply
• Land can be residential, commercial, recreational, cultivated, extraction or uninhabitable
• Labor refers to all human effort in production, both mental and physical. Workers apply their abilities and the payment for labour is wages
• Labor is a human factor that cannot be stored and labor types vary
• Labor is categorized as unskilled, semi-skilled, skilled, or professional
• Capital includes all man-made resources used in production such as factories, machinery, tools, equipment, raw materials, and wealth, which earns interest
• Capital is a man-made and mobile factor and can be fixed, working, or venture
• Entrepreneurship involves bringing other factors of production together and is a person who decides what, where, and how to produce
• An entrepreneur needs imagination, administrative power, and action orientation, along with organizational skills and a professional approach

Branches of Economics

• Economics is divided into two main branches: Microeconomics and Macroeconomics
• Microeconomics deals with individual behavior of firms and households
• It focuses on specific areas within the circular flow diagram, such as consumers, households, firms, or industries
• Microeconomics analyzes how economic agents make decisions about resource allocation
• Macroeconomics studies the overall behavior of the economy as a whole
• It includes the behavior of firms and households, treating them as one entity and considers the impact of government and foreign sectors on the entire economy