2. Microeconomics Principles A. Goodman

3. Copyright © 2004 South-Western/Thomson Learning The course Class Meets: TTh 9:35 – 10:50 Office Hours: M 10-12, TTh 11 – 12, or by appointment Office location: 2145 FAB Phone: 577-3235; e-mail: allen.goodman@wayne.edu Department and Course Web site: http://www.econ.wayne.edu/agoodman/ http://www.econ.wayne.edu/agoodman/ Also material on Blackboard

4. Copyright © 2004 South-Western/Thomson Learning Text materials The text materials will be: The Economics of Health and Health Care, 3 rd Ed., by N. Gregory Mankiw, to be purchased at the appropriate bookstore … or on-line. Make sure you get the Micro split.

5. Copyright © 2004 South-Western/Thomson Learning Exams and Grading Students will be responsible for the following assignments: 3 mid-term exams @ 16% 48% 1 final exam 32% Quizzes and Attendance 20% Intermittent Extra Credit Friday night April 29, 6:30 – 8:30 pm

6. Copyright © 2004 South-Western/Thomson Learning Teaching Assistants Susanne Buesselmann and Meihua Lu. They’re smarter than I am … so you should listen to them. They speak for me … and vice versa.

7. Cell Phones?

8. Copyright © 2004 South-Western/Thomson Learning The Curve For some curricula, a grade below C- is considered a failing grade.

9. Copyright © 2004 South-Western/Thomson Learning What does it cost you to come to WSU? Think carefully. What do you GIVE UP in order to come here? These are costs!

10. Ten Principles of Economics

11. Copyright © 2004 South-Western/Thomson Learning Economy...... The word economy comes from a Greek word for “one who manages a household.”

12. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS A household and an economy face many decisions: Who will work? What goods and how many of them should be produced? What resources should be used in production? At what price should the goods be sold?

13. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS Society and Scarce Resources: The management of society’s resources is important because resources are scarce. Scarcity... means that society has limited resources and therefore cannot produce all the goods and services people wish to have.

14. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS Economics is the study of how society manages its scarce resources.

15. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS How people make decisions. People face tradeoffs. The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives.

16. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS How people interact with each other. Trade can make everyone better off. Markets are usually a good way to organize economic activity. Governments can sometimes improve economic outcomes.

17. Copyright © 2004 South-Western/Thomson Learning TEN PRINCIPLES OF ECONOMICS The forces and trends that affect how the economy as a whole works. The standard of living depends on a country’s production. Prices rise when the government prints too much money. Society faces a short-run tradeoff between inflation and unemployment.

18. Copyright © 2004 South-Western/Thomson Learning Principle #1: People Face Tradeoffs. “There is no such thing as a free lunch!”

19. Copyright © 2004 South-Western/Thomson Learning Making decisions requires trading off one goal against another. Principle #1: People Face Tradeoffs. To get one thing, we usually have to give up another thing. Guns v. butter Food v. clothing Leisure time v. work Efficiency v. equity

20. Copyright © 2004 South-Western/Thomson Learning Principle #1: People Face Tradeoffs Efficiency v. Equity Efficiency means society gets the most that it can from its scarce resources. Equity means the benefits of those resources are distributed fairly among the members of society.

21. Copyright © 2004 South-Western/Thomson Learning Principle #2: The Cost of Something Is What You Give Up to Get It. Decisions require comparing costs and benefits of alternatives. Whether to go to college or to work? Whether to study or go out on a date? Whether to go to class or sleep in? The opportunity cost of an item is what you give up to obtain that item.

22. Copyright © 2004 South-Western/Thomson Learning Principle #2: The Cost of Something Is What You Give Up to Get It. Basketball star Lebron James chose to skip college and go straight from high school to the pros where he has earned millions of dollars.

23. Copyright © 2004 South-Western/Thomson Learning People make decisions by comparing costs and benefits at the margin. Principle #3: Rational People Think at the Margin. Marginal changes are small, incremental adjustments to an existing plan of action.

24. Copyright © 2004 South-Western/Thomson Learning Principle #3: Example Is my first hamburger at a meal “worth it?” How about my second? My third? My fourth? And how about whatever I’m using to wash it down ???

25. Copyright © 2004 South-Western/Thomson Learning Back to Hamburgers!

26. Copyright © 2004 South-Western/Thomson Learning Principle #4: People Respond to Incentives. Marginal (incremental) changes in costs or benefits motivate people to respond. The decision to choose one alternative over another occurs when that alternative’s marginal (incremental) benefits exceed its marginal (incremental) costs!

27. Copyright © 2004 South-Western/Thomson Learning Principle #5: Trade Can Make Everyone Better Off. People gain from their ability to trade with one another. Competition results in gains from trading. Trade allows people to specialize in what they do best. QUESTION: Do you produce EVERYTHING you need?