Welcome to ECON 160

Principles of Microeconomics

Professor Tontz

Instructor

Richard Tontz

Office: JH 4253

Email: richard.tontz@csun.edu

Phone: (818) 677-2433

Office hours: Mon.,Wed. 2:00 – 3:00pm, Tues. 3:15-4:00pm by appointment.

Class Website: http://www.csun.edu/~rlt50610/

Index Card

• Front-side (lined)ECON 160/TR12:30pm

Name & underline what you go by

Phone number

Email

Major/option

Hobbies

Favorite book

• Back-sideOccupation, if currently working

Your expectations 6 years from now

Any message you want to give me

Instructional Information

• 9 hour / Week Course of Study

• Path to Success– Read chapters before Discussion session– Download and review Classnotes &

Powerpoints– Discussion sessions: The Conversation– Definitions: Flash Cards– Topical Reviews

ECONOMICS

Economics is a Science that analyzes how Individuals behave, in a world of Scarcity.

Science is Objective or Positive

• Positive: Describes what is or will be

– Objective– Factual– Testable– Descriptive

• Normative: Describes what should or ought to be

– Subjective– Contains a value judgement– Opinion

Construction of Theory

• Abstractions

• Definitions

Definitions: Words to describe reality

Children learn words in pairs

( in ) ( out )

( up ) ( down )

( left ) ( right )

( Hot ) ( Cold )

Alternative perspective: The world exists in a continuum

Definitions break up the continuum into parts

• Red Yellow Blue

• Orange Green• Red Orange Yellow Green Blue Indigo Violet

Economic Analysis

• Looks at small degrees of Change

• Marginal: Additional: One more…

• Marginal Value: Additional Value of having one more

• Marginal Revenue: Additional revenue from one more.

• Marginal Cost: Additional cost of one more

Construction of Theory

• Abstractions

• Definitions

• Assumptions

• Implications

• Adoption of Theory

A Good Is Anything, That an Individual Wants to Have More Of, at Zero Price.

• Anything : Material or Non-material

• An individual wants

• Have More of

• At Zero Price

Resource: Anything that can be used to produce Goods.

• Land = all its attributes

• Labor = People

• Capital = Buildings & Equipment

Assumptions

• Humankind has unlimited wants

• Our resources are limited

• Scarcity : Individually, and as a Society, we do not have enough resources to produce all the things we want.

Implications of Scarcity

• Choice: people must choose which goods to acquire.

• Economic Cost: The Cost of any action, is the personal value of the next highest valued alternative given-up.

• Competition: We are in a state of competition for the use of resources

Forms of Competition in Society

• Violence, or Threat of Violence

• Social/Political : competition on the basis of some limited behavior or characteristic

• Economic/Market: competition based on offering the highest value in exchange.

Primary Social Goal = Fairness

• Violence: not fair.

• Social political: not fair.

• Economic: not fair,

• Life is NOT FAIR !!

But, the market offers the broadest and most fair system

What Economics Is About

• Microeconomics: decisions of individuals and firms: what to buy and what to produce.

• Macroeconomics: the whole economic system and the role of government.

Mechanisms of Choice

• Political: our representatives make choices

• Economic/market: individuals and firms make choices based on relative prices about what to produce

Product Markets

  FIRMSHOUSEHOLD

 ResourceMarkets

$'s $'s Revenue

$'s Income $'s

Goods &Services

Goods &Services

Resources Inputs

 

Circular Flow Diagram of the Exchange Economy

Circular Flow Diagram of the Exchange Economy

• Households: Decisions: What to sell? What to buy? Assume Maximize Utility

• Firms: Decisions: What inputs to use? What to produce? Assume Maximize Profits.

• Markets: Factor Markets, Product Markets

Role of Money: The medium of exchange

Scarcity Society Choices

• What to produce? Goal find the mixture of outputs that maximizes society’s value.

• How to produce? Goal: find the optimal mix of inputs to maximize technical output.

• For whom to produce? Who will get to consume the goods produced.