Microeconomic principles

SECTION 1
Introduction to economics: What is it?

Before we dive into the principles of microeconomics, we need to define some of the major ideas that lie at the heart of economics. What, for example, is the economic way of thinking? What do economists mean when they throw around terms like market structure and the invisible hand?

This unit will identify and define these terms before addressing the driving principle behind microeconomics: the idea that individuals and firms (economic agents) make rational choices based on self-interest. These decisions are necessary, because all resources are scarce. In other words, no good or item is infinitely available.

This unit will also introduce you to a number of economic models, the assumptions and constraints associated with each, and the ways they help us better understand real-life situations.

Objectives

Upon successful completion of this unit, you will be able to:

• explain the economic way of thinking;
• identify how individual economic agents make rational choices given scarce resources, and explain how to optimize the use of resources at hand;
• apply the concept of marginal analysis in order to make optimal choices, and identify whether the choices are efficient or equitable; and
• apply basic economic models related to production, trade, and the circular flow of resources.

1.1 Individual choice: The core of economics

1.2 Economic models

1.3 The circular flow diagram

SECTION 2
Supply, demand, and equilibrium

This unit will first introduce you to the ceteris paribus assumption, which is crucial to building correlations between economic variables. When using ceteris paribus, we assume that all variables - with the exception of those in explicit consideration - will remain constant. We will then examine the supply and demand models and the resulting market equilibrium that occurs where the supply curve and the demand curve intersect.

Objectives

Upon successful completion of this unit, you will be able to:

• analyze and apply the mechanics of demand and supply for individuals, firms, and the market; and
• determine equilibrium in the market under various situations that either cause movements or shifts in demand and supply.

2.1 The ceteris paribus assumption

2.2 Demand

2.3 Supply

2.4 Market equilibrium

SECTION 3
Price controls and elasticity

Here we will look at what causes movements along the curve and the set of factors that cause the curves to shift, affecting both price and quantity, before discussing the meaning and significance of elasticity. Next, we will take a look at what happens when a market fails to produce a reasonable equilibrium. This situation typically occurs when either the market is not competitive or complete, or its participants are ill-informed. We will evaluate various ways in which the government can address these failures and begin to understand the intricate relationship between government and economics.

Objectives

Upon successful completion of this unit, you will be able to:

• apply the concept of elasticity as a measure of responsiveness to various variables; and
• analyze how the market can be manipulated through price controls or quantity controls.

3.1 Manipulating the market: Price controls

3.2 Elasticity

3.3 Review