Week 1 (CH 1) Introduction For BB

Welcome to MIA Class
Pre-requisite :- Economic Principles

(BEO 1105)
Self-enrollment :-
Chapter 1: Preliminaries
Access code:- mia2016

Last Day:- 8 August
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. 1 of 18
Assessm
ent
Assessment Task Assessment Criteria Weight Due
Date
1 MCQ Test • Choose the correct answer 20 % Week
6
2 Industry/Market Demonstrate thorough understanding of
the relevant concepts.
20 % Week
(Wed:
Study 24/8, 10.30 – Demonstrated ability to draw conclusions 11
11.30) with appropriate justifications.
Use diagrams when appropriate
Explanations are clear and concise.
Information from appropriate sources is
integrated with analysis. Information is
accurately referenced using Harvard
System, including in text referencing if
applicable.
Well formatted, edited, and minimal
grammatical and spelling errors.

Timely submission.
3 Final examination Written 60 % Final

Exam
Schedul
e
Tutorial questions
(available on VU Collaborate)
to be attempted
before coming to class
d-written answers to each week tutorial questi

e handed in at the commencement of tutorial s
1
CHAPTER
Preliminaries
Prepared by:
Fernando & Yvonn
Quijano
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e.
CHAPTER 1 OUTLINE
1.1 The Themes of Microeconomics
1.2 What Is a Market?
1.3 Real versus Nominal Prices
1.4 Why Study Microeconomics?

Preliminaries
● microeconomics Branch of economics that

deals with the behavior of individual economic units—
consumers, firms, workers, and investors—as well as
the markets that these units comprise.
● macroeconomics Branch of economics that

deals with aggregate economic variables, such as the
level and growth rate of national output, interest

rates, unemployment, and inflation.
Poll 1: Identifying micro vs macro statements
1.1 THE THEMES OF MICROECONOMICS
1. Trade offs
2. Prices and Markets
3. Theories and Models
4. Positive versus Normative Analysis
1. Trade-Offs
=> Opportunity cost of an economic
choice
=> Best alternative forgone
Þ Quantity of a good that has to be

sacrificed in order to have more
of another good
1. Trade-Offs
Consumers
Consumers have limited incomes, which can be spent on a wide
variety of goods and services, or saved for the future.
A T?
- Product
X or Product WY ?
H
Current E N?
- Current consumption or future consumption
Consumption W H ?
Prod. X
Future
Consumption
Y Prod. Y
1. Trade-Offs
Workers
Workers also face constraints and make trade-offs. First, people must
decide whether and when to enter the workforce. Second, workers
face trade-offs in their choice of employment. Finally, workers must
sometimes decide how many hours per week they wish to work,
thereby trading off labor for leisure.
- Work or Study ?
- Work or Leisure?
- Job A or Job B?
1. Trade-Offs
Firms
Firms also face limits in terms of the kinds of products
that they can produce, and the resources available to
produce them.
T ?
WHA
- Product X or Product Y ? ?
How
- Labour Intensive X or Capital Intensive ?
- Producer Goods or Consumer Goods T?

WHA ?
Trade offs arises when
choices are made.
Trade offs depend on :-

- Prices
- Preferences
2. Prices and Markets
Microeconomics describes how prices

are determined.
Economic
System
Planne Market
d
Econo Econo
my my
Types of economic system?

In a centrally planned / command economy, prices are
set by the government.
In a market economy, prices are determined by the interactions

of consumers, workers, and firms. These interactions occur in
markets—collections of buyers and sellers that together determine
the price of a good.
3. Theories and Models
In economics, explanation and prediction are based
on theories.
Theories are developed to explain observed

phenomena in terms of a set of basic rules
and assumptions.
A model is a mathematical representation, based on

economic theory, of a firm, a market, or some other
entity.
What is a good theory or model???

4. Positive versus Normative Analysis
● PositiveAnalysis: Verifiable
Analysis describing relationships of cause
and effect.
● Normative Analysis: Non - Verifiable

Analysis examining questions of what

ought to be.
CHAPTER 1 OUTLINE
1.1 The Themes of Microeconomics
1.2 What Is a Market?
1.3 Real versus Nominal Prices
1.4 Why Study Microeconomics?

1.2 WHAT IS A MARKET ?
● Market : Collection of buyers and sellers that,
through their actual or potential interactions,
determine the price of a product or set of
products.
● Market definition : Determination of the

buyers, sellers, and range of products that should
be included in a particular market.
Market
Structure? Market
Definition ?
Market
Competitive versus Noncompetitive Markets
Structure
● Perfectly Competitive Market : Market
with many buyers and sellers, so that no
single buyer or seller has a significant impact
on price.
- Intense competition
- Absence of significant market power
- eg. Confectionary industry
Competitive versus Noncompetitive Markets
● Non Competitive Market :
- Lack of competition
- Significant market power
- eg. Oil industry
Market Price
● Price prevailing in a competitive
market.
- Single price
- Average price across brands
l tu ra l
Agricu
- A market can include more than an industry.
Wh e a t
- An industry consists of firms selling
similar or closely related products.
Cargill Australia Ltd
- A firm refers to a single producing unit
in the industry.
Market Definition — The Extent of a Market
● Extent of a market : Boundaries of a

market, both geographical and in terms of range
of products produced and sold within it.
Market definition is important for two

reasons:
• A company must understand who its actual and

potential competitors are for the various
products that it sells or might sell in the future.
• Market definition can be important for public

policy decisions.

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Welcome to MIA Class

Pre-requisite :- Economic Principles

Access code:- mia2016

grammatical and spelling errors.

3 Final examination Written 60 % Final

d-written answers to each week tutorial questi

1.1 The Themes of Microeconomics

1.2 What Is a Market?

1.3 Real versus Nominal Prices

1.4 Why Study Microeconomics?

● microeconomics Branch of economics that

● macroeconomics Branch of economics that

level and growth rate of national output, interest

Poll 1: Identifying micro vs macro statements

=> Opportunity cost of an economic

Þ Quantity of a good that has to be

- Producer Goods or Consumer Goods T?

Trade offs depend on :-

2. Prices and Markets

Microeconomics describes how prices

Types of economic system?

In a market economy, prices are determined by the interactions

the price of a good.

Theories are developed to explain observed

A model is a mathematical representation, based on

What is a good theory or model???

4. Positive versus Normative Analysis

● Normative Analysis: Non - Verifiable

Analysis examining questions of what

1.1 The Themes of Microeconomics

1.2 What Is a Market?

1.3 Real versus Nominal Prices

1.4 Why Study Microeconomics?

● Market definition : Determination of the

Competitive versus Noncompetitive Markets

● Non Competitive Market :

- eg. Oil industry

● Extent of a market : Boundaries of a

Market definition is important for two

• A company must understand who its actual and

• Market definition can be important for public

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