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ECON101: Principles of Microeconomics

Unit 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.

Unit 1 Time Advisory
This unit should take approximately 10.75 hours to complete.

☐     Subunit 1.1: 4 hours

☐     Subunit 1.2: 3.5 hours

☐     Subunit 1.3: 0.5 hours

☐     Assessments: 2.75 hours

Unit1 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Think intuitively about economic problems. - Identify how individual economic agents make rational choices given scarce resources and know 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.” - Demonstrate an understanding of some simplistic economic models related to production, trade, and the circular flow of resources.

1.1 Individual Choice: The Core of Economics   1.1.1 Scarce Resources, Choices, and Opportunity Costs   Note: The concept of opportunity cost is critical to understanding individual choice because you always have to give up something in order to get another thing.  In other words, the real cost of purchasing “good A” is equal to the value of the next best alternative (“good B”) that you give up in order to purchase “good A.”  For example, what would you rather be doing instead of studying this course?  The task that you have forgone in order to study economics is the opportunity cost of studying economics.

  • Reading: biz/ed’s “The Economic Problem” and Principles of Microeconomics: “Chapter 1, Section1: Defining Economics” Link: biz/ed’s “The Economic Problem” (HTML) and Principles of Microeconomics: "Chapter 1, Section 1: Defining Economics" (PDF)

    The Economic Problem is also available in:
    MP3

    Instructions: Read  “The Economic Problem” to learn about the basic problem of scarcity and the difference between "needs” and "wants.”  Next, read section 1 in chapter 1 of Principles of Microeconomics to encounter the three fundamental questions that economists face and to learn about “Opportunity Costs.”  Go through the three examples presented in the “Try It” section and note how eventually every decision boils down to choosing between competing alternatives.

    Reading this chapter should take approximately 1 hour.

    Terms of Use: Please respect the copyright and terms of use displayed on the biz/ed website above.  The Principles of Microeconomics text was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-Share-Alike 3.0 License without attribution as requested by the work’s original creator or licensee.

  • Reading: Russell Roberts’ “Getting the Most Out of Life: The Concept of Opportunity Cost” Link: Russell Roberts’ “Getting the Most Out of Life: The Concept of Opportunity Cost” (HTML)

    Instructions: Please click on the above link to see how the author relates ordinary  examples from everyday life to reinforce the concept of opportunity cost.

    Reading this article should take approximately 30 minutes.

    Note: Russell Roberts is a Professor of Economics at George Mason University and a Research Fellow at Stanford University’s Hoover Institution.  He is the Features Editor of the Library of Economics and Liberty and the host of EconTalk.

    Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • Web Media: Annenberg Learner’s Economics U$A: “Resources and Scarcity” Link: Annenberg Learner’s Economics U$A: “Resources and Scarcity” (Flash)

    Instructions: The above link will bring you to the webpage of an instructional video series on economics.  Please click on the “VoD” icon on the right hand side of the first topic, “Resources and Scarcity.”

    Watching this video and pausing to take notes should take approximately 1 hour.

    Note: This video is 28 minutes long.  The website recommends that serious students view the videos at least twice, taking notes the second time around.

    Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

  • Lecture: Khan Academy’s “Opportunity Cost” Link: Khan Academy’s “Opportunity Cost” (YouTube)

    Instructions: Please watch the entire lecture, which is about opportunity costs.

    Watching this video should take approximately 5 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Lecture: Khan Academy’s “Increasing Opportunity Cost” Link: Khan Academy’s “Increasing Opportunity Cost” (YouTube)

    Instructions: Please watch the entire lecture, which is about increasing opportunity costs.

    Watching this video should take approximately 5 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Guest Lecture: YouTube: TED Talks: “Bjorn Lomborg Sets Global Priorities” Link: YouTube: TED Talks: “Bjorn Lomborg Sets Global Priorities” (YouTube)

    Instructions: This is an optional lecture and not a requirement of the course.  In this unit, you learned that scarce resources underlie every economic decision that is made in society.  You also learned that because of these scarce resources, there are trade-offs between alternate choices.  In this guest lecture, Bjorn Lomborg advances this idea by discussing some pressing issues that need to be addressed.  This talk should help you to identify “the economic way of thinking” which will be elaborated upon in the next subunit.

    Watching this lecture should take approximately 20 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.  It is attributed to TED and the original version can be found here.

1.1.2 Getting to Know Economics   1.1.2.1 The Economic Way of Thinking   1.1.2.2 Microeconomics versus Macroeconomics   1.1.2.3 The Work of an Economist   1.1.2.4 Normative versus Positive Economics   - Reading: Principles of Microeconomics: “Chapter 1, Sections 2 and 3” Link: Principles of Microeconomics: “Chapter 1, Sections 2 and 3” (PDF)

 Instructions: Read these sections. Please take a moment to read
through the stated learning outcomes for this chapter of the text,
which you can find at the beginning of each section. These should be
your goals as you read through the chapter.  

 Reading these sections should take approximately 1 hour.  

 Terms of Use:  The text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommerical-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the works original creator or licensee.

1.2 Economic Models   Note: In this subunit, you will examine three introductory models that economists use to analyze the world.  These should show you how to “think like an economist.”

1.2.1 The Production Possibility Frontier   - Reading: Principles of Microeconomics: “Chapter 2, Sections 1 and 2” Link: Principles of Microeconomics: “Chapter 2, Sections 1 and 2” (PDF)

 Instructions: Read these sections. Take a moment to read through
the stated learning outcomes for this chapter of the text, which you
can find at the beginning of each section.  These should be your
goals as you read through the chapter.  

 The first section of the chapter introduces you to the four factors
of production that are present in the economy: Labor, Capital,
Natural Resources, and Entrepreneurship.  Using any two factors of
production, you can then learn to construct the Production
Possibility Frontier (PPF) in a two plane model.  Note the economic
implications of the downward slope and the bowed-out shape of the
PPF curve.  Also note the meaning of producing on the curve versus
inside the curve.  Lastly, think about what it means to move along
the curve.  

 Reading these sections should take approximately 1 hour and 30
minutes.  

 Terms of Use: The text was adapted by The Saylor Foundation under a
[Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the works original creator or licensee.

1.2.2 Comparative Advantage vs. Absolute Advantage   Note: This model is an application of the Production Possibility Frontier studied in the previous section, albeit in a global set-up.  The argument for international trade, specialization, comparative advantage, and the resulting economic growth is brought to light here.  The mechanics of comparative advantage will reveal why it would benefit a country to import goods it produces at home.

  • Reading: Library of Economics and Liberty: “Comparative Advantage” Link: Library of Economics and Liberty: “Comparative Advantage” (HTML)

    Instructions: Please read the ”Introductions” section and stop before the “Excerpts.”  This reading is only an introduction to the topic; it will explain the underlying meaning of the model in a theoretical way.  We will formally study the model from a mathematical perspective in the next reading.

    Reading this article should take approximately 30 minutes.

    About the link: The Library of Economics and Liberty is dedicated to advancing the study of economics, markets, and liberty.  It offers a unique combination of resources for students, teachers, researchers, and aficionados of economic thought.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Reading: NetMBA’s “David Ricardo and Comparative Advantage” Link: NetMBA’s “David Ricardo and Comparative Advantage” (HTML)

    Instructions: Before reading the above link, please make sure you remember the concept of Opportunity Cost since it is crucial to understanding how Comparative Advantage is calculated.

    Reading this article should take approximately 10 minutes.

    Note: This article has been taken from the Internet Center for Management and Business Administration.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101: “Chapter 2: Opportunity Costs” Link: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101“Chapter 2: Opportunity Costs” (HTML)

    Also available in:
    Flash
    PPT

    Instructions: Please click on the above lecture to review all of the topics we have covered thus far in the course.

    Watching this lecture should take approximately 30 minutes.

    Note: Principles of Microeconomics was taught by Professor John Kane of the State University of New York at Oswego.  Notes from twenty lectures are available here as ordinary Web pages with graphics, as Flash videos with an audio narration, and as PowerPoint presentations.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: Khan Academy’s “Comparative Advantage and Absolute Advantage” Link: Khan Academy’s “Comparative Advantage and Absolute Advantage” (YouTube)

    Instructions: Please watch the entire lecture, which is about comparative advantage and absolute advantage.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Lecture: Khan Academy’s “Comparative Advantage Specialization and Gains from Trade” Link: Khan Academy’s “Comparative Advantage Specialization and Gains from Trade” (YouTube)
     
    Instructions: Please watch the entire lecture, which is about comparative advantage specialization and gains from trade.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

1.3 The Circular-Flow Diagram   - Lecture: Living Economics’ Macroeconomic Lectures: “Circular Flow” Link: Living Economics’ Macroeconomic Lectures: “Circular Flow” (Flash)

 Instructions: Please click on the Circular Flow tab to hear the
lecture on the Circular Flow Diagram.  Once you are done, practice
drawing the Circular-Flow diagram on your own to test your
understanding of the interrelationship between the various sectors
of the economy.  

 Watching this lecture should take approximately 5 minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the web pages above.
  • Reading: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101: “Chapter 4: Market System” Link: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101: “Chapter 4: Market System” (HTML)

    Also available in:
    PPT
    Flash

    Instructions: When you click on the link above, you will be directed to a webpage with a list of contents.  Please click on “Chapter 4” and read the HTML version of the lecture notes in their entirety.  Once you are done, practice drawing the Circular-Flow diagram on your own to test your understanding of the interrelationship between the various sectors of the economy.

    Completing this assessment should take approximately 1 hour and 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

Assessments for Unit 1   - Assessment: Econ100’s “What is Economics?: Chapter 1” (HTML) Link: Econ100’s “What is Economics?: Chapter 1” (HTML)

 Instructions: Please follow the link to get to the main page of
Econ100.  Click on the “Quiz” tab on the left hand side menu and
then go to Chapter 1 to take the test.  The quiz should be a
thorough assessment of your understanding of the material covered in
this unit.  

 Completing this assessment should take approximately 45 minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Assessment: www.Econ100.com's “The Economic Problem Quiz” (Chapter 3) Econ100’s “The Economic Problem Quiz: Chapter 3” (HTML)

    Instructions: Please follow the link to get to the main page of Econ100.  Click on the “Quiz” tab on the left hand side menu and then go to Chapter 3 to take the test.  Please attempt all four levels of the quiz for a thorough assessment of your understanding of the material covered in this unit.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.