1. NS4960 Spring Term 2017 Basic Microeconomic Tools
IMF, Seven Questions About the Recent Oil Price Slump, December 22, 2014

2. Economics Overview Economics concerned with three related issues:
How scarce resources are exchanged
How consumers and producers interact
The role of government in compensating for the limitations of markets
Economics divided into two main branches
Positive economics -- factual world, what does occur
Normative economics -- value judgements – what should occur
Factors of Production
Land, natural resources
Human capital – human investments
Real capital – physical investments
Enterprise – entrepreneurship, management

3. Economic Problem Choice and opportunity cost
Resources limited – choices have to be made between competing alternatives
Opportunity costs – true cost of a choice – what we could have done if we did chose that
Three basic questions concerning resources
What to produce
How to produce it
For whom to produce

4. Supply and Demand I

5. Supply and Demand II

6. Determinants of Demand

7. Determinants of Supply

8. Operation of Supply/Demand
Factors that affect demand and supply
Demand – shift demand curve
Income changes
Prices of other goods – complements and substitutes
Changing preferences
Supply – shift demand curve
Costs of production
Technological change
Increases in productivity

9. Elasticity of Demand I

10. Elasticity of Demand II

11. Interference with Equilibration
Classic interferences in the market place
Keep the price above the equilibrium
Minimum wage -- unemployment
Farm Prices – food surpluses
Keep the price below the equilibrium
Rent control -- shortage of housing
Overvalued exchange rates - balance of payments deficits