Microeconomics-week1 for the cumpus st.pdf

micro economic

1. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
PMP Economics
Week 1
Preliminaries

2. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Learning Objectives
(W1LO1) describe the themes of Microeconomics
(W1LO2) define the concept of Market
(W1LO3) explain the Production Possibilities Frontier
(W1LO4) distinguish main types of economic systems
By the end of this lecture, you should be able to:

3. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
A hospital in a small town has an old dialysis machine, which
only can run 30 hours per week.
How should allocate this machine to the needed patient?
•Patient A is a 6 years old child who needs 10 hours dialysis per week. She is a cute girl and is waiting
•for kidney transplant.
•Patient B is a 55 years old man. He has 3 young children and needs 5 hours dialysis per week.
•Patient C is a 4 years old boy who needs 4 hours per week.
•Patient D is a 78 years old granny. She needs 4 hours dialysis per week.
•Patient E is a 7 years old boy with a twin and 2 other sisters. He needs 5 hours per week.
•Patient F is 8 years old. He needs 5 hours per week dialysis. He has no family living in an orphan house.
•Patient G is 32 years old. She has two young children. She needs 6 hours per week.
•Patient H is 30 years old male. He needs 5 hours dialysis per week. He has two young children.
•Patient J is 45 years old. He needs 6 hours per week for 6 months as his brother will donate him a kidney.
He has no children or wife.
•Patient K is 65 years old. He needs 10 hours per week. He is a wealthy man and has promised to
buy another dialysis machine for the next year if he survive.
Decide how you will allocate the 30 hours, in order of preference.
Starter Activity (Debate)
Aiming High
What are your alternative
solutions?

4. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
The Themes of Microeconomics
Economicsis the social science that studies how
individuals and societies choose to use the scarce
resources that nature and previous generations have
provided and the incentivesthat influence and
reconcile those choices.
Economics is divided into two branches:
Microeconomicsexamines the functioning of
individual economic units (i.e. consumers, firms,
workers, and investors, etc) and the markets in which
these units interact.
Learning Objective: (W1LO1) describe the themes of Microeconomics
Macroeconomics deals with the economic behaviour of aggregates,
such as the level and growth rate of national output, interest rates,
unemployment, and inflation -on a national scale.

5. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Alleconomicquestionsandproblemsariseduetohumanunlimited
wantsgivenlimitedresourcesavailable.
wants exceeds the ability
of resources to satisfy them
we must chooseamong
the available alternatives
Value of the next best alternative
The Themes of Microeconomics
SCARCIRY
Choices
Trade-offs
Opportunity
Cost
Learning Objective: (W1LO1) describe the themes of Microeconomics

6. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
The Themes of Microeconomics
Trade-Offs
CONSUMERS
•Trade-offs in the choice of more of some goods for less of the others
•Trade-off between current consumption and consumption in the future
WORKERS
•Trade-offs in different choices of employment
•Trade-off between leisure and labour
FIRMS
•Trade-offs in what (products) to produce
•Trade-offs among the resources to utilisein production process
Learning Objective: (W1LO1) describe the themes of Microeconomics

7. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
The Themes of Microeconomics
3 fundamental questions:
WHAT to produce? (Scarcity)
HOW to produce?
The resources that are used to produce goods and services are
called factors of production.
Factors of production are grouped into four categories:
•Land
•Labour
•Capital
•Entrepreneurship
For WHOM to produce? (relevant to Demand and Supply)
Learning Objective: (W1LO1) describe the themes of Microeconomics

8. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Learn from media 1
Learning Objective: (W1LO1) describe the themes of Microeconomics

9. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
(W1LO1) describe the themes of
Microeconomics
LO2:​
LO3:​
LO4:​
LO5:​
Learning Objectives

10. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
•Choice is a tradeoff
•Costis what you must give up to get something
•Benefitis what you gain from
•something
•People make rational choicesby comparing
benefits and costs
•Most choices are “how much” choices made at the
margin
•Choices respond to incentives
The Themes of Microeconomics
Economic Ideas:
Six ideas define the economic way of thinking:
Learning Objective: (W1LO2) define the concept of Market

11. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Prices and Markets
•Trade-offs are based on the prices faced by individual
economic decision-makers -consumers, workers, or firms.
•In a centrally planned economy, prices are set and controlled
by the government.
•In a market economy (free market), prices are determined by
the interactions of consumers, workers, and firms in markets.
The Themes of Microeconomics
(W1LO2) Understand the concept of Market

12. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Theories and Models
•Economics is concerned with the explanationsof observed
phenomena and predictions based on theoriesdeveloped
from a set of assumptions.
•A modelis aformal statement of a theory, usually in a form of
mathematical representation, to presume and predict a
relationship between two or more variables.
•Statistics and econometrics let us measure the accuracyof
our predictions.
The Themes of Microeconomics
Learning Objective: (W1LO2) define the concept of Market

13. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Positive versus Normative Analysis
Economics deals with two kinds of questions: positive and normative.
Positive analysis:
•Deals with explanation and prediction
•Describes relationships of cause and effect.
•Describes what exists and how it works.
Normative analysis:
•Questions with what ought to be
•Analyses outcomes of economic behaviour and evaluates them as good or
bad
•Examines questions of what ought to be.
•Normative analysis is often supplemented by value judgments.
•Clarifies the trade-offs to help to illuminate the issues and sharpen the
debate in policies.
The Themes of Microeconomics
Learning Objective: (W1LO2) define the concept of Market

14. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Class Activity 2
Positive or Normative?
Most healthcare should
be provided free at the
point of use.

15. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Class Activity 2
Positive or Normative?
Bio fuels and oil are substitutes in the energy industry

16. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Class Activity 2
Positive or Normative?
An increase in value added tax will
impact the less well off more than
the rich.

17. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
What Is a Market?
•Market -a regular gathering of buyers and sellers that, through their
actual or potential interactions, determines the price of products.
•Market definition -Determination of the consumers, providers, and
range of productsincluded in a particular market.
Extent of a market: Boundariesof a market, both geographicaland
regarding range of products produced and traded within it.
Market definition is important for two reasons:
A firm needs to understand who its actual and potential competitors
are for their current products or potential future products.
Market definition is important for public policies.
•Arbitrage-Practice ofbuying and selling productsin different
markets or in derivative forms in order to take advantage of differing
prices for the same asset (i.e. buying at lower price and selling at
higher price)
Learning Objective: (W1LO2) define the concept of Market

18. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
What Is a Market?
Competitive versus Noncompetitive Markets
•Perfectly competitive market: Market that has lots of sellers
and buyers and none of themhas a significant impact on
price.
Many markets are competitive enough to be treated as if
they were operating in perfect competition.
Other markets containing a small number of producers
could also be treated as competitive depending on the
purposes of the analysis.
•Markets containing many producers but are non-competitive
is where individual firms can jointly affect the price.
Learning Objective: (W1LO2) define the concept of Market

19. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
What Is a Market?
•When the markets are not perfectly
competitive, some firms might
charge different prices for the same
product (i.e. price discrimination).
•The market prices of most goods will
fluctuate over time. In many cases,
the fluctuations can be rapid,
especially in competitive markets.
Market Price: Price is determined in a competitive market.
Learning Objective: (W1LO2) define the concept of Market

20. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
EXAMPLE
A VACUUM CLEANER IS A VACUUM CLEANER . OR IS IT?
There are actually two different markets for vacuum cleaners, which can be
identified by the type of store where the vacuum cleaner is sold.
TABLE 1: Market for vacuum cleaner
TYPE OF MARKET COMPANIESAND PRICES (2020)
MassMarket vacuum cleaners: Sold
by mass merchandisers such as Currys,
Argos, John Lewis & Partners
Currys: £35 -£880
Argos: £30 -£830
John Lewis & Partners: £55 -£800
Dealer vacuum cleaners :Sold by
vacuum cleaner dealers –stores that
sell only (or mostly) vacuum cleaners
and vacuum cleaner accessories.
The Vacuum Store: £100 -£2000
Central Vacuum Store: £135 -£3,800
The Range: £28 -£600
What Is a Market?
Learning Objective: (W1LO2) define the concept of Market

21. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Learn from media 2
Learning Objective: (W1LO2) define the concept of Market

22. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
(W1LO1) describe the themes of
Microeconomics
(W1LO2) define the concept of Market
LO3:​
LO4:​
LO5:​
Learning Objectives

23. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Production Possibilities Frontier
•The production possibilities frontier (PPF) shows all
combinations of goods and services that can be produced given
the efficientusage of available factors of production and the
state of technology.
The Production Possibilities Frontier
Assumptions:The analysis
only focuses on two goods
at a time while holding
the quantities of all other
goods and services
constant.

24. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
•Assumption:There are two products:
Clothing and Food
•The PPF separates attainable
combinations (any points inside or on
the PPF) from unattainable
combinations(points outside PPF).
•The PPF is concavebecause its slope
(the marginal rate of transformation)
increasesas the level of production of
food increases.
•The PPF has a negative slope
(downward sloping)
Production Possibilities
Pearson Education Ltd, 2015
Figure 1: the Production Possibility Frontier
The Production Possibilities Frontier
Learning Objective: (W1LO3) explain the Production Possibilities Frontier

25. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Opportunity Cost is a Ratio
•The opportunity cost of one unit of food is the quantity (units)
of clothing sacrificed divided by the rise in the quantity (units)
of food to consume (i.e. ΔClothing/ΔFood).
•The opportunity cost of one unit of clothing is the quantity of
food forgone divided by the change in the quantity of clothing
gained (i.e. ΔFood/ΔClothing).
Example:When the opportunity cost of one unit of food =x
units of clothing,
Opportunity Cost of one unit of food =1/xunits of clothing
Pearson Education Ltd, 2015
The Production Possibilities Frontier
Learning Objective: (W1LO3) explain the Production Possibilities Frontier

26. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Class Activity 3
Studentshavechosentostudyinhighereducationonce
theyhadchoiceofhavingleisure,jobandmarriage.
Learning Objective: (W1LO3) explain the Production Possibilities Frontier
Aiming High
What can you do to
minimise your
Opportunity Cost once
you are studying at the
University?

27. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
(W1LO1) describe the themes of
Microeconomics
(W1LO2) define the concept of Market
(W1LO3) explain the Production
Possibilities Frontier
LO4:​
LO5:​
Learning Objectives

28. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Command economy or centrally planned economy
•Government owns and controls factors of production and the
allocation of production
Mixed economy
•Mixture of market and state provision of goods and services.
Government intervenes the market through taxes, subsidy,
regulation, prohibition and price control
Economic systems
Learning Objective: (W1LO4) distinguish main types of economic systems
Three main types of economic systems:
Free market or pure market
economy
•Resources are allocated through
price mechanism
•Business decision-making is
driven by profit motive

29. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
•Protection of natural resources (fishing grounds, forests)
To avoid over-exploitation of natural resources to the point of destruction
under free market.
•Guarantee the provision of Education, health services, law and order
These services would have been under-provided if they were left to the
market.
•Create a stable economic environment.
Free market is also susceptible of frequent booms and slumps (i.e.
growth and recession).
•Reduce income and wealth inequalities through the taxation system.
•Make sure that firms take account of the externalities they create
(e.g. pollution).
Why government Interventions in free market?
Learning Objective: (W1LO4) distinguish main types of economic systems

30. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Learn from media 3
Learning Objective: (W1LO4) distinguish main types of economic systems

31. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
(W1LO1) describe the themes of
Microeconomics
(W1LO2) define the concept of Market
(W1LO3) explain the Production
Possibilities Frontier
(W1LO4) distinguish main types of
economic systems
Learning Objectives

32. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Summary

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Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
Q & A

34. Effective from September 2020 | P_EcoEconomics
Copyright © 2020 Pearson Education • Microeconomics• Robert S. Pindyck & Daniel Rubinfeld, 9
th
Global Edition.
You can watch below video to better understand of PPF:
https://www.youtube.com/watch?v=Wx0oxVmb1vU
The below paper can be very helpful in understanding various economic
system:
Comparative Economic Systems: Capitalism and Socialism in the 21st Century
https://www.bu.edu/eci/files/2021/08/Comparative-Economic-Systems.pdf
Independent Study Task