economics 103 dr. h.j. schuetze university of victoria
TRANSCRIPT
![Page 1: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/1.jpg)
Economics 103
Dr. H.J. SchuetzeUniversity of Victoria
![Page 2: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/2.jpg)
Topic 1: Introduction
What microeconomists do, why they are so weird, and other stories.
![Page 3: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/3.jpg)
Two kinds of economics
Macroeconomics …… is about big aggregates
(unemployment, inflation, output, …)
… is not what we do in Economics 103 Microeconomics …
… is what we do in Economics 103
![Page 4: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/4.jpg)
Free to choose
(Micro)economics is about making choices or making decisions.We live in a world of scarcity.
![Page 5: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/5.jpg)
Why are microeconomists weird?
(Micro)economists think about decisions in terms of trade-offs:Every decision has good things and bad
things associated with it.We call good things benefits and bad things
costs. They don’t have to be monetary costs and
benefits. But to make life easy, we will use dollars to measure benefits and costs – at least for now.
![Page 6: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/6.jpg)
Decisions and opportunity cost
Every decision to do something involves not being able to do something else (scarcity).Every decision has an opportunity cost
More precisely, the opportunity cost of a decision is
![Page 7: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/7.jpg)
Costs and benefits
Example: should you go see a movie or study for Econ 103?Costs and benefits of going to see a movie:
benefit (enjoyment): $10
- cost of ticket: - $8
= total:
![Page 8: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/8.jpg)
All costs are opportunity costs
“Should I go see a movie” in isolation makes no sense to an economist: In the example, you might think that since the
benefit is greater than the explicit cost, you should go see a movie.
But this explicit cost is only one of the opportunity costs of seeing a movie.
![Page 9: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/9.jpg)
All costs are opportunity costs
Remember opportunity costs:One of the opportunity costs is giving up the
opportunity to do the next best thing: We sometimes call this an implicit cost.
To make good decisions, you need to take all opportunity costs into account.
![Page 10: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/10.jpg)
Making decisions
Benefits and costs
![Page 11: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/11.jpg)
Economists v Accountants
Let’s say you have a business and want to know whether it’s worth keeping it open.
Revenue $100,000- Explicit costs - $60,000- Depreciation - $5,000= Accounting profit $35,000
![Page 12: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/12.jpg)
Economists v Accountants
So your accountant would say that your business makes a profit.
If you want to know whether you should stay in that line of business, you need to take all opportunity costs into account.
![Page 13: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/13.jpg)
“Yes or no” decisions, take 1
The way to make “yes or no” decisions is to
![Page 14: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/14.jpg)
But … sunk costs
Example: You have already paid $10 for a non-
refundable ticket to a football game. Your friend has a free ticket. On the day of the game, there is a
tremendous snowstorm. If you both have the same tastes, who do you
think is more likely to attend the game?
![Page 15: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/15.jpg)
But … sunk costs
Sunk costs are costs that you incur regardless of what decision you take
![Page 16: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/16.jpg)
“Yes or no” decisions, take 2
The way to make “yes or no” decisions is to add up all the benefitssubtract all the opportunity costssee if the benefits are greater than all the
costs
![Page 17: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/17.jpg)
“How much” decisions
Not all decisions are “yes or no” decisions. Most decisions are “how much” decisions.
Economists make “how much” decisions by using marginal analysis.
![Page 18: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/18.jpg)
Marginal analysis
Economists make “how much” decisions by thinking about them one step at a time. Think of it as trying to climb a mountain in the dark.
You take one step and if it’s a step up, that was a good step to take. If the step is a step down, then that wasn’t good.
It’s called marginal analysis because you’re pushing out the edge (the “margin”) a little bit at a time, and then see if that was a good or a bad step.
![Page 19: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/19.jpg)
Marginal cost, marginal benefit
The marginal cost:
The marginal benefit:
Example: lawn-mowing business Costs:
Benefits:
![Page 20: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/20.jpg)
Marginal cost
Quantity of lawns mowed
Total cost
0 $0
1 10.50
2 21.75
3 35.00
4 50.50
5 68.50
6 89.25
7 113.00
Marginal cost of mowing lawns
Marginal cost of lawn mowed
$10.50
11.25
13.25
15.50
![Page 21: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/21.jpg)
Marginal cost curve
$0
$5
$10
$15
$20
$25
$30
$35
0 1 2 3 4 5 6 7$0
$5
$10
$15
$20
$25
$30
$35
Quantity of lawns mowed
Marginal cost of lawn mowed
MC
![Page 22: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/22.jpg)
Marginal benefit
Quantity of lawns mowed
Total benefit
0 $0
1 35.00
2 65.00
3 91.00
4 114.00
5 135.00
6 154.00
7 172.00
Marginal benefit of mowing lawns
Marginal benefit of lawn mowed
$35.00
30.00
26.00
23.00
![Page 23: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/23.jpg)
Marginal benefit curve
$0
$5
$10
$15
$20
$25
$30
$35
0 1 2 3 4 5 6 7$0
$5
$10
$15
$20
$25
$30
$35
Quantity of lawns mowed
Marginal benefit of lawn mowed
MB
![Page 24: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/24.jpg)
Marginal analysis
Quantity of lawns mowed
0
1
2
3
4
5
6
7
Comparing marginal benefit and marginal cost
Marginal benefit of lawn mowed
$35.00
30.00
26.00
23.00
21.00
19.00
18.00
Marginal cost of lawn mowed
$10.50
11.25
13.25
15.50
18.00
20.75
23.75
![Page 25: Economics 103 Dr. H.J. Schuetze University of Victoria](https://reader031.vdocuments.mx/reader031/viewer/2022032104/56649cf65503460f949c658d/html5/thumbnails/25.jpg)
Marginal analysis
$0
$5
$10
$15
$20
$25
$30
$35
0 1 2 3 4 5 6 7Quantity of lawns mowed
Marginal cost, marginal benefit of lawn mowed
MC
MB