ENGR 3360U Winter 2012

Unit 2.1.1
Introduction to Microeconomics
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01

Unit 2.1 Introduction to Microeconomics

Change Record
2014-I-01 Initial Creation

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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Learning Objectives
Understand the basic concepts of Economics
Understand markets and what drives them
Understand what drives economists!

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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Course Outline for Unit 2

2.1 Microeconomics
2.2 Macroeconomics
2.3 Money and the Bank of Canada

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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Basic Coverage of Microeconomics

2.1.1 Cost-Benefit Principle
2.1.2 Three Common Pitfalls
2.1.3 Production Possibilities
2.1.4 Law of Diminishing Returns
2.1.5 Supply and Demand

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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

2.1.1 Cost-Benefit Principle

The Scarcity Problem
People have boundless needs and wants but the
available resources are limited (even for Bill Gates)

So much wine, so little time

There are at least 10,000 commercial wines out
there. How to find the one you love best?
Artsys solution; try them all. (At 1 bottle per day,
would take 30 years!)
Engineers solution; drink beer!
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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Cost-Benefit Principle
An entity (individual, firm, society) will
take an action if and only if the extra
benefits derived from that action exceed the
extra costs
Homo economicus
Assumptions
People are rational
Not a given that the action will succeed
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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Economic Surplus
Economic Surplus is the MONEY benefit of the
action minus its cost
what is not measurable, make measurable
Galileo
Not everything that counts can be measured;
not everything that is measured, counts
Einstein
May be other reasons for doing a thing (Ethics)
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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Opportunity Cost
The value of the next-best alternative that
cannot be done because you are doing this
Example
Suppose you can buy an Xbox on campus for
$100. But WalMart sells it for $80 in Ajax, a
$30 return cab ride away. Should you get the
cheaper box? No. The Opportunity Cost is
$100; the cost of going to WalMart is $110 so
your economic surplus is -$10.
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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Time is Money
In calculating Economic Surpluses, be sure
to consider YOUR time.
What are you worth per hour?
In the previous case, you could walk to
WalMart. But think of your time cost!
What does it cost you to fail a year at
UOIT?
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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Cost of Failing a year in Engineering!

$ of tuition, books, residence = $20K
OC of MacDs = 35(10)(6)(10) = $21K
Lost of last years salary
= $135K
Total Cost = $176K (OUCH!)

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2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco