Introduction to Microeconomics PDF

Introduction to Microeconomics Course Material (CM1) 1st Term A.Y. 23-24 Learning Objectives 1.To define economics and microeconomics. 2.To understand how people make decisions (1 to 4 Economic Principles).  Key Terms ECONOMY ▪ Economy comes from the Greek word, oikonomos, w...

Introduction to Microeconomics Course Material (CM1) 1st Term A.Y. 23-24 Learning Objectives 1.To define economics and microeconomics. 2.To understand how people make decisions (1 to 4 Economic Principles).  Key Terms ECONOMY ▪ Economy comes from the Greek word, oikonomos, which means “one who manages a household”. Oikos = household and nomus = system or management. “management of household” now pertains to microeconomics. “state management” pertains to macroeconomics. Why study Economics? 1 It will help students understand the world in which you live. 2 It will make students more astute participant in the economy 3 It will give students a better understanding of both the potential and the limits of economic policy.  Figure 1. Problem of Scarcity Key Terms Limited resources Unlimited wants SCARCITY Scarcity ▪The limited nature of society’s resources. ▪Scarcity means society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as each member of a household cannot get everything they want, each individual in a society cannot attain the highest standard of living to which she might aspire. Key Terms Figure 2. Economics Limited resources Unlimited wants ECONOMICS Allocation ▪Economics is the study of how society manages its scarce resources. ▪Economics as the efficient allocation of the scarce means of production toward satisfaction of human needs and wants. ▪Scarce means of production refers to our economic resources like land, labor, and capital, which we use to produce all the goods and services that we need and want.  Key Terms ECONOMICS ▪Economist study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Types of Economic Systems ▪Traditional economy is 1. basically a subsistence economy. A family produces Traditional only for its own consumption. ▪The decisions on what, how, Economy how much, and for whom to produce are made by the family head, in accordance with traditional means of production. Types of Economic Systems ▪ Command economy is the type of economy, wherein the manner of 2. production is dictated by the government. Command ▪ The government decides on what, how, how much, and for whom to produce Economy Types of Economic ▪ The basic characteristic of market Systems economy is capitalism’s basic characteristics, which means that the 3. resources are privately-owned, and that people themselves make the decisions. ▪ It is an economic system wherein the most Market economic decisions and means of production are made by the private owners. Economy ▪ Under this economic system, factors of production are owned and controlled by individuals, and people are free to produce goods and services to meet the demand of consumers, who, in turn, are also free to choose goods according to their own likes. Types of Economic Systems ▪ Socialism is an economic system wherein key enterprises are owned by 4. the state. In this system, private ownership is recognized. However, the state has control over a large portion Socialism of capital assets, and is generally responsible for the production and distribution of important goods. ▪ In a socialist economy, the main emphasis is on equitable distribution of income and wealth. Types of Economic Systems ▪This economy is a mixture of market systems and the command 5. system. ▪The Philippine economy is Mixed described as a mixed economy Economy since it applies a mixture of three forms of decision making. However, it is more market- oriented rather than command or traditional.  Ten Principles of Economics  Ten Principles of Economics I. How People Make Decisions Principle 1: People Face Trade-Offs Principle 2: The Cost of Something Is What You Give Up to Get It Principle 3: Rational People Think at the Margin Principle 4: People Respond to Incentives  Ten Principles of Economics I. How People Make Decisions Principle 1: People Face Trade-Offs  Ten Principles of Economics II. How People Interact Principle 5: Trade Can Make Everyone Better Off Principle 6: Markets Are Usually a Good Way to Organize Economic Activity Principle 7: Governments Can Sometimes Improve Market Outcomes  Ten Principles of Economics I. How People Make Decisions Principle 1: People Face Trade-Offs  Ten Principles of Economics I. How People Make Decisions Principle 1: People Face Trade-Offs Equality – the property of distributing economic prosperity uniformly among the members of society. Efficiency – the property of society getting the most it can from its scarce resources.  Ten Principles of Economics I. How People Make Decisions Principle 2: The Cost of Something Is What You Give Up to Get It Opportunity Cost – whatever must be given up to obtain some item.  Ten Principles of Economics III. How the Economy as a Whole Works Principle 8: A Country’s Standard of Living Depends on Its Ability to produce Goods and Services Principle 9: Prices Rise When the Government Prints Too Much Money Principle 10: Society Faces a Short Run Trade-Off between Inflation and Unemployment  Ten Principles of Economics I. How People Make Decisions Principle 3: Rational People Think at the Margin Rational people – people who Marginal change – systematically and purposefully a small incremental adjustment to a do the best they can to achieve plan of action their objectives. (adjustments around the edges of what you are doing) Margin means “Edge” Marginal benefits and marginal costs  Ten Principles of Economics I. How People Make Decisions Principle 4: People Respond to Incentives Incentive – something that induces a person to act. Summary ▪The fundamental lessons about individual decision making are that people face trade-offs among alternative goals, that the cost of any action is measured in terms of forgone opportunities, that rational people make decisions by comparing marginal costs and marginal benefits, and that people change their behavior in response to the incentives they face. Summary ▪The fundamental lessons about interactions among people are that trade and interdependence can be mutually beneficial, that markets are usually a good way of coordinating economic activity among people, and that the government can potentially improve market outcomes by remedying a market failure or by promoting greater economic equality. Summary ▪The fundamental lessons about the economy as a whole are that productivity is the ultimate source of living standards, that growth in the quantity of money is the ultimate source of inflation, and that society faces a short-run trade-off between inflation and unemployment. References Mankiw, G.N., (2018). Principles of Microeconomics. 8th Edition. Cengage Learning Asia Pte Ltd. Bato, M.J.A., Malveda,L.R., Viray Jr. E.B., (2016). Microeconomics Simplified. Anvil Publishing, Inc Other Resources Various photographs from https://www.freepik.com/ Disclaimer The purpose of this course material is for academic use. The contents of this material have been gathered from various authors, other materials, and/or references. This material should not be shared, posted, uploaded, and/or published in any form, be it mechanically or digitally and other than those forms.