Economics Introduction

Microeconomics

 

This overview of Microeconomics, while written for the beginning student, will be much more informative with an additional reading upon the completion of Parts I, II, and III.

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Introduction
Macroeconomics involves the study of aggregate economic activity in order to enhance the employment and efficiency of economic resources. Microeconomics involves the efficient allocation and use of economic resources by individuals and firms interacting within a market system. 
The efficient allocation and use of fully-employed economic resources is necessary for maximum economic well being.

Part I How Demand and Supply Affect Profit
Before investigating the interaction of individuals and firms within a market system, we must better understand the market behavior of individuals and firms. Consumer market behavior will be explored in Chapter 19 on How Elasticity of Demand Affects Total Revenue and Chapter 20 on Demand Theory and Consumer Choice. Firm market behavior will be explored in Chapter 21 on How Cost of Production Affects Supply. Part I concludes with an analysis of the interrelationship between revenue and costs in Chapter 22 on Understanding Profit.

Part II Product and Factor Markets
Part II involves an analysis of both product markets (the sale of consumer and industrial goods) and factor markets (the sale of land, labor, capital, and enterprise). Four product market models (Chapters 23-26) and many factor market models (Chapters 27-29) will be analyzed to aid in our understanding of resource allocation and employment.

Companies selling a product may have a very large number of competitors (Chapter 23 on Pure Competition), many competitors (Chapter 25 on Monopolistic Competition), few competitors (Chapter 26 on Oligopoly) or no competitors (Chapter 24 on Monopoly). Of particular interest will be the price and quantity of products sold in a particular market. Also of interest will be the profit and production efficiency of the firms operating within each market model.

Before investigating factor markets it will be necessary to have a better understanding of the Demand for Economic Resources (Chapter 27). The labor market (Chapter 28 on Wage Determination) will be explored first because its models are somewhat settled and because students are, have been, or will be active participants in this market. A competitive market for labor begins our analysis. Its wage rate and quantity of workers hired will be used as a reference during our study of models involving both monopoly sellers of labor (labor unions) and monopoly buyers of labor (monopsony). Our study of factor markets concludes with Chapter 29 on the market models for determining Rent, Interest, and Profit.

Part III Government Activity, Capitalism, and Our Mixed Economy

Part III deals with some of the topics of concern raised by our study of economics. Analyzing Public Sector Economic Activity (Chapter 30) and The Economics of Government Subsidies (Chapter 31) will begin Part III. Government attempts to regulate the activity of business will be summarized in Chapter 32 on Antitrust and Other Government Regulation. We conclude our study with Chapter 33 on Distributing Income.

Darin's Music Emporium- A Case Study

Note to students and faculty: Questions of interest to Darin Jones appear in the class Discussion Questions.

Darin Jones was pleased. College was going well. His small business, the Quick Clean Laundry Service, was providing him with spending money and the savings he would need upon graduation to open his Music Emporium. The plans for his new business were already beginning to take shape.

Darin's Music Emporium would open in a small city of about 60,000 people. He had learned from a recent macroeconomics class that the current recession would probably end just before graduation so the timing would be excellent. Darin had enrolled in a micro-economics class in hopes of learning more about how the principles of supply and demand would help him understand the world of business.

Darin was concerned about what prices to charge. He knew high prices would lower quantity sold but by how much. What would be the effect on total revenue? Maybe he should charge low prices. He wanted to know how different product prices were interrelated and how would demand be affected by the weak economic recovery being predicted.

Darin was also concerned about the money he would be investing and borrowing for his business. And what about costs? He knew costs such as store rental and store equipment would be determined before he opened his Emporium. He planned to work full time without a salary which would help. But how many people to hire, how much to spend on advertising, and many other costs would have to be determined.

The first lecture in Darin's microeconomics class had concerned the concept of thinking on the margin. Darin remembered having to put margins on his English themes. He understood that these margins represented a change from a place for writing to a place where writing was not allowed. He also knew that synonyms for marginal included additional and incremental. Understanding how economic variables were changing "on the margin" was apparently the key to understanding the interrelationship between revenue and cost. Please join Darin in his search to understand these and other important microeconomic relationships. The search will cover many college courses and a lifetime of business.

Chapter 19 
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