ECON 103: PRINCIPLES OF
MICROECONOMICS
PROFESSOR MARIE REKKAS
MO: 10:30 – 11:20 TH: 10:30 – 12:20
How to Succeed in ECON 103
• Come to lectures
• Read the relevant Chapter
• Do all tutorial questions
• Ask questions in tutorials
• Do tons of practice questions in MyLab Economics
• Work consistently: do not cram
• Ask for help as soon as you need it
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CHAPTER 1: WHAT IS ECONOMICS
ECONOMICS
MICRO? MACRO?
• Individual’s perspective • Large-scale phenomena
• Decision-making: firm, • Unemployment
household, individual • Inflation
• Societal outcomes • Recessions
• Markets • etc.
• Government • ECON 105
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ECONOMICS
• We all want MORE than we can get
• SCARCITY: inability to satisfy all our wants
• We must therefore make CHOICES
• Choices depend on INCENTIVES
– INCENTIVE: reward that encourages an action or a penalty
that discourages an action
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TWO BIG QUESTIONS
• How do choices determine what, how, and for
whom goods and services get produced?
• When do choices made in the pursuit of self-interest
also promote social interest?
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WHAT
What determines
these patterns of
productions?
How do choices end
up determining the
quantity of each item
produced in Canada
and around the
world?
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• LAND
HOW • LABOUR
– Work time and effort
Goods and services
produced using • CAPITAL
factors of production – Quality of labour depends
on human capital
(education, experience) and
capital (machines, tools)
• ENTREPENEURSHIP
– Human resource that
organizes above
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FOR WHOM?
• LAND earns rent
Who gets the goods
and services depends • LABOUR earns wages
on the incomes that • CAPITAL earns interest
people earn.
• ENTREPENEURSHIP earns
profit
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SELF-INTEREST and SOCIAL INTEREST
• SELF-INTEREST: choices that you think are best for
YOU
• SOCIAL INTEREST: choices that are best for SOCIETY
as a whole
– Efficiency: resource use is efficient if it is not possible to
make someone better off without making someone else
worse off
– Equity: fairness (but what is fair?)
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SELF-INTEREST vs. SOCIAL INTEREST
• Examples that illustrate tension between self-interest
and social interest:
– Globalization
– Climate change
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SELF-INTEREST vs. SOCIAL INTEREST
GLOBALIZATION
Globalization means the expansion of international
trade, borrowing and lending, and investment.
In the self-interest of: consumers who buy the low-cost
imported goods and services, multinational firms that
produce in low-cost regions and sell in high-price
regions
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SELF-INTEREST vs. SOCIAL INTEREST
GLOBALIZATION CONT’D
But is it in self-interest of low-wage workers in other
countries and Canadian firms that can’t compete with
low-cost imports?
Is globalization in the social interest?
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SELF-INTEREST vs. SOCIAL INTEREST
CLIMATE CHANGE
Climate change is a huge political issue today.
Burning fossil fuels to generate electricity and to power
planes and cars, and trucks pours billions of tonnes of
carbon dioxide into the atmosphere each year. These
emissions pose huge risks to global warming.
Every day, you make self-interested choice to use
electricity and gasoline to and contribute to carbon
emissions.
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SELF-INTEREST vs. SOCIAL INTEREST
CLIMATE CHANGE CONT’D
You leave your carbon footprint. You can lessen this by
walking, riding a bike, taking a cold shower, or planting
a tree.
But can each one of us be relied upon to make
decisions that affect the Earth’s carbon dioxide
concentration in the social interest?
Can governments change the incentives we face so that
our self-interested choices are also in the social
interest?
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ECONOMIC WAY OF THINKING
Defining the economic way of thinking:
• A choice is a TRADEOFF
• People make RATIONAL CHOICES by comparing
benefits and costs
– BENEFIT: what you gain from something
– COST: what you must give up to get something
• Most choices are “how-much” choices made at the
MARGIN
• Choices respond to INCENTIVES
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ECONOMIC WAY OF THINKING
A Choice is a TRADEOFF
• Giving up one thing to get something else
• On Saturday night, will you study or have fun?
• You can’t study and have fun at the same time, so
you must make a choice
• Whatever you choose, you could have chosen
something else
• Your choice is a tradeoff
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ECONOMIC WAY OF THINKING
Making a RATIONAL CHOICE
• A rational choice is one that compares costs and
benefits and achieves the greatest benefit over cost
for the person making the choice
– BENEFIT: gain/pleasure that it brings and is determined by
preferences
– PREFERENCES: what a person likes and dislikes and the
intensity of those feelings
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ECONOMIC WAY OF THINKING
Making a RATIONAL CHOICE CONT’D
• COST: What you must give up
– OPPORTUNITY COST of something is the highest-valued
alternative that must be given up to get it
– eg. What is your opportunity cost of going to a concert?
• The things you can’t afford to buy if you purchase the ticket
• The things you can’t do with your time if you go to the concert
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ECONOMIC WAY OF THINKING
Making a RATIONAL CHOICE CONT’D
• The idea of rational choice provides an answer to the
question of: WHAT goods and services will be
produced and in what quantities?
– Answer: Those that people rationally choose to buy!
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ECONOMIC WAY OF THINKING
How much? Choosing at the MARGIN
• You can allocate the next hour between studying and
texting your friends
• So you compare the benefit of a little bit more study
time with its cost – your choice made at the MARGIN
• MARGINAL BENEFIT: benefit from pursuing an
incremental increase in an activity
• MARGINAL COST: opportunity cost of pursuing
incremental increase in activity
• MB > MC: rational choice is to do more of that activity
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ECONOMIC WAY OF THINKING
INCENTIVES
• A change in marginal cost or a change in marginal
benefit changes the incentives we face and leads us
to change our choice
• Central idea of economics is that we can predict how
choices will change by looking at changes in
incentives
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A SOCIAL SICENCE and POLICY TOOL
Economists distinguish between two types of
statements:
• POSITIVE STATEMENTS: what IS
• NORMATIVE STATEMENTS: what OUGHT to be
• A positive statement can be tested by checking it
against facts
• A normative statement expresses and opinion and
cannot be tested
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A SOCIAL SICENCE and POLICY TOOL
UNSCRAMBLING CAUSE and EFFECT
• Task of economic science is to discover positive
statements that are consistent with what we observe
in the world and that enable us to understand how
the economic world works
• Economists create and test economic models
– ECONOMIC MODEL: a description of some aspect of the
economic world that includes only those features that are
needed for the purpose at hand
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A SOCIAL SICENCE and POLICY TOOL
ECONOMIST AS POLICY ADVISOR
• Economics is a toolkit for advising governments and
businesses and for making personal decisions
• Economics provides a method of evaluating
alternative solutions – comparing marginal benefits
and marginal costs
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ECONOMISTS IN THE ECONOMY
JOBS FOR AN ECONOMICS MAJOR
• Economist
• Market research analyst
• Financial analyst
• Budget analyst
• Consultant
• Entrepreneur
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ECONOMISTS IN THE ECONOMY
SKILLS NEEDED FOR ECONOMICS JOBS
• Critical-thinking skills
• Analytical skills
• Math skills
• Writing skills
• Oral communication skills
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