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EconomicsHow society manages scarce resourcesPeople  spending decisionsFirms  what to chargeSociety  policy decisionsMicroeconomicsHow households & firms make decisions and interactBlended LearningImprove large learningUtilizes onlineOnline lessens before class5-10 minOnline problem setsClickers neededGradesExams1st (25%) – Oct. 8th2nd (25%) – Nov. 19thFinal (30%) – Cumulative – Dec. 16th @ 8amClicker PointsClickers.umd.edu10%Correct answers = 1 ptIncorrect answers = ½ ptLowest 3 days droppedPoints posted on ELMS on FridaysProblem Sets10%Aplia10 graded & 1 non-graded activityCourse WebsiteElms.umd.eduAccess to problem sets (aplia)How to SucceedVisit course websiteCome to classPrint out syllabusEmailsSubject – Econ 200 [email protected]@econ.umd.eduPrinciples of Microeconomics“Time is money”“No such thing as a free lunch”ScarcityLimited resources4 principles1: All decisions involve tradeoffs2: Cost  Give up to get (Opportunity Cost)3: Rational decision Making  At margin4: People respond to incentivesPrinciple 1:RationalEvaluate pros (benefits) & cons (costs)Principle 2:Opportunity costAny item is whatever’s given up to obtain itWhat you give up/what you getPrinciple 3:Thinking at the marginMarginal changesPrinciple 4:IncentivesInfluences decision makingPrincipal 5Trade can make everyone better offTrades beneficial for both sidesAllows countries to specializePrinciple 6Markets are good way to organize economic activityMarket economyHouseholds & firms in powerPrinciple 7Government’s can sometimes improve market outcomesLaws, regulations, incentivesEnforce property rightsPrinciple 8Country’s standard of living relies on its ability to provide goods & servicesProductivity is keyIncreases living standardsPrinciple 9InflationGovernment prints too much $$$ = prices rise1920sGrowth in quantity of moneyPrinciple 10Society faces a short – run trade off between inflation & unemploymentIncreased amount of $$$ stimulates economies overall level of spendingHigher demand over time cause firms to raise prices, hire more workersMore hiring = lower unemploymentBusiness CycleIrregular & highly unpredictable fluctuations in economic activity measured by production of goods and servicesScientific MethodObservation, theory, and more observationPay attention to natural experiments offered by historyRole AssumptionsSimplify the complex worldEasier to understandAllows focus to solve problemsEconomic ModelsComposed of diagrams and equationsCircular Flow DiagramModel shows how dollars flow through markets among householdsProduction Possibilities FrontierShows various combinations of outputMacro & MicroMicroHow households and firms make decisions & interactMacroEconomy wide phenomenaPositive vs. Normative AnalysisPositiveDescriptive, make a claim how it isNormativePrescriptive, how it ought to beEconomists in DCSince 1946, have advised President on economyWhy Advice is not Always TakenSeveral different advisors in different areas take a look at advice and comment on it as wellCommunications, press, legal, etc.Why Economists DisagreeThe validity of a alternative positive theoriesDifferent values & normative views on policiesDifferent scientific judgmentPerception vs. realityThemes of MicroEconomicsScarcityDecision making principles  “Thinking like an economist”MarketsScarcityNature of limited resourcesHeart of economicsLeads to need of decision-making“Never enough of everything to please everyone”Decision MakingPrinciple 1Trade OffsOccurs in every choiceEvaluate pros & consPrinciple 2Opportunity CostItem is worth what’s given up to obtain itTotal cost INCLUDES Opp. CostRevealed PreferenceChoice taken outweighs Opp. CostRational Decision – MakerOnly takes action if benefits exceed costsThinking at the MarginEvaluate marginal costs & marginal benefitsSunk CostCost that been committed & cannot be refundedThinking at margin means ignoring sunk costWhat if Cost or Benefit Changes?Action likely to changeIncentiveReward or PunishmentPrinciple 4People respond to incentivesQuestion1,000 repairs600 on new transmission6,500 w/ new transmission5,700 w/o new transmissionMarginal Cost = 6006,500 – 5,700 = 800Repair Transmission? = YESFundamental QuestionsWhat to produceHow to produceWho gets itMarket EconomyEconomy that allocates resources through decentralized decisions of firms & households as they interact in markets for goods & servicesMarket for Goods & ServicesMarketGroup of buyers and sellers of a particular good or serviceBuyers = demandSellers = supplyCompetitive MarketMarket in which they’re many buyers and many sellers so that each has a negligible impact on market priceDeterminants of DemandPrice of ProductNegative correlation between price and quantity demandedCalled, “Law of Demand”ExampleMarket for LattesUse demand scheduleDependent variable on horizontal, independent variable on verticalSupplyBehavior of sellersQuantity supplied of any good is amount sellers are able & willing to sellDeterminants of SupplyPrice of productPrice of other goodsPrice of inputs (goods used to make the product)Technology (machines used in production)Supply ScheduleShows relationship between price able to sell good at and quantity suppliedLaw of SupplyQuantity supplied rises when price risesPositive relationshipMarket SupplyAdd up individual suppliesSupply & Demand TogetherEquilibrium price is where quantity supplied meets quantity demandedDemand vs. Quantity Demanded (QD)DemandTastesIncome# of buyersPrice of related goodsExpectationsQuantity DemandedRefers to 1 pt on demand curveChange in price changes QD, NOT DEMANDSurplusQuantity supplied > quantity demandedFacing surplus sellers will cut price to increase salesPrice continues to fall until equilibrium is reachedShortageQuantity demanded > quantity suppliedSellers raise pricePrices rise until market reaches equilibriumLaw of Supply & DemandClaim that price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balanceHow to Analyze Change in EquilibriumDecide whether shift was in supply or demandDecide which direction the curve shiftsUse supply and demand diagram to see how the shift changes the equilibrium price and quantityDemandPrice  causes movement along Demand curveonly time Quantity Demanded changesNo. of BuyersIncomePrice of Related GoodsTastesExpectationsNormal GoodPositively related to incomeShifts demand curve to rightInferior GoodNegatively


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UMD ECON 200 - Economics

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