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    24AU PrinMicro Week 1 Aug22

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    24AU PrinMicro Week 1 Aug22

    Uploaded by

    이민희
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    2 views14 pages

    24AU PrinMicro Week 1 Aug22

    Uploaded by

    이민희

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    © All Rights Reserved
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    Download as pdf or txt
    of 14

    Principles of Microeconomics

    Week 1

    Aug 22, 2024


    Announcement & Plan for Today

    ▶ Announcements
    ▶ The Chapter 1 Smartwork assignment is due next Thursday
    (Aug 29).
    ▶ Chapter 1 will be evaluated based on completion. Starting
    from Chapter 2 through the final chapter, Smartwork
    assignments will be evaluated based on correctness.
    ▶ Check your group assignment (“Class Seating Chart” in the
    Week 1 Module).
    ▶ Plan for Today
    ▶ Review and finish the Foundations of Microeconomics.

    1/12
    Review: Foundations of Microeconomics

    ▶ 1. Trade-offs: People face trade-offs due to scarcity.


    ▶ 2. Opportunity cost: The best decision is the one that
    minimizes the direct cost + opportunity cost.
    ▶ Opportunity cost: the value of the next-best alternative that
    must be given up to obtain some item.
    ▶ 3. Marginal thinking: Rational people think at the margin.
    ▶ Thinking at the margin means following the rule of
    optimization:
    If MB > MC, do more. If MB < MC, do less.
    ▶ The optimal amount is achieved when MB = MC.

    2/12
    Foundations of Microeconomics

    ▶ 4. Incentives: People respond to incentives.


    ▶ 5. Trade creates value: Trade can make people better off.
    ▶ Circular Flow Diagram

    3/12
    Foundation 4. Incentives

    ▶ People respond to incentives


    ▶ Incentives: something that induces a person to act or not act
    ▶ Category 1
    ▶ Positive incentives: encourage actions (rewards)
    ▶ Negative incentives: discourage actions (punishment)
    ▶ Category 2
    ▶ Direct incentives: intended change in behavior
    ▶ Indirect incentives: a secondary (unintended) change in
    behavior

    4/12
    Exercise 1: Positive vs. Negative Incentives

    ▶ A reward offered for the return of a lost item:


    Positive/Negative
    ▶ Your instructor offers extra credit for attending an event
    outside of class: Positive/Negative
    ▶ The government taxes the sale of cigarettes:
    Positive/Negative
    ▶ A parking ticket given for parking in a no-parking zone:
    Positive/Negative
    ▶ The government offers a tax credit for donating to recognized
    charities: Positive/Negative
    ▶ Your instructor institutes an attendance policy that drops your
    grade if you miss more than two classes: Positive/Negative

    5/12
    Exercise 2: Direct vs. Indirect Incentives

    ▶ Some drivers whose cars have semi-autonomous driving


    technology spend more time with their eyes off the road,
    texting or otherwise distracted: Direct/Indirect
    ▶ The U.S. federal government has, at times, offered a tax credit
    for buyers of high-fuel-efficiency cars and alternative-fuel cars.
    The tax credit serves as a(n) [direct/indirect] incentive to buy
    an environment-friendly vehicle.

    6/12
    Foundation 5. Trade Creates Value

    ▶ Each person focuses on what he or she does best


    (=specialization)
    ▶ People exchange goods and services voluntarily (=trade).
    =⇒ Trade can make people better off.

    7/12
    Circular Flow Diagram
    ▶ For simplicity, let’s assume that there are two decision-makers and
    two markets in the economy.
    Product Market Resource Market
    buyer seller
    Household
    (consumer) (employee)
    seller buyer
    Firm
    (producer) (employer)
    ▶ Now, let’s draw a diagram that visualizes the economy:

    8/12
    Complicated Circular Flow (No Exam)
    (You don’t need to know about this diagram!)

    9/12
    Exercise 3: An Example of Trade

    ▶ Suppose you own a bicycle but haven’t found the time to ride
    it much lately. These days, it is only worth $31 to you.
    One of your close friends, who recently got a job at the
    college bookstore two miles down the road, wants to take it
    off your hands. He offers you $70 for the bicycle, and you
    gladly accept. Your friend is also happy because he thinks the
    bicycle is worth $98.
    Question: How much total value was created from this trade?

    10/12
    Exercise 4: Circular Flow

    In the markets for goods and services in the circular-flow diagram,


    a. households provide firms with savings for investment.
    b. households provide firms with labor, land, and capital.
    c. firms provide households with output.
    d. firms provide households with profit.

    11/12
    Exercise 5: Circular Flow

    Which of the following transactions does not take place in the


    markets for factors of production in the circular flow diagram?
    a. A construction company rents trucks for its business.
    b. A farmer hires a worker to help with the harvest.
    c. Anthony receives a salary for his work as an analyst for an
    investment firm.
    d. A woman buys corn for dinner.

    12/12
    Any Questions? Thank you and see you next time!

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