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Microeconomics: Lecture 1: Introduction and Preliminaries

This document provides an introduction and overview of a microeconomics course. It discusses that the course will introduce fundamental economic tools and analysis using lectures and problem sets. Key concepts that will be covered include positive and normative analysis, how markets are defined, and real versus nominal prices using the consumer price index to measure inflation over time. The course aims to explain individual decision-making of consumers, firms, and workers within economic models and markets.

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blackhawk31
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31 views

Microeconomics: Lecture 1: Introduction and Preliminaries

This document provides an introduction and overview of a microeconomics course. It discusses that the course will introduce fundamental economic tools and analysis using lectures and problem sets. Key concepts that will be covered include positive and normative analysis, how markets are defined, and real versus nominal prices using the consumer price index to measure inflation over time. The course aims to explain individual decision-making of consumers, firms, and workers within economic models and markets.

Uploaded by

blackhawk31
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Microeconomics: Lecture 1

Introduction and Preliminaries

About the course


This is a sophisticated introduction to
economics for students like you!

there will be some challenges, but you will be


surprised by how much you will achieve!

You will learn


the most fundamental tools that economists use how modern economic theory allows us to
understand economic phenomena
4/22/2014 Introduction 2

Two teaching blocks


Lecture: formal tools, language and analysis are
introduced.

Recitation by TA: go over problem sets and


discuss other material

4/22/2014

Introduction

http://newclasses.nyu.edu/

Course Website:

1. lecture notes (slides) 2. problem sets and answer keys 3. sample exams

Grading Policy 10 Problem Sets 20% 2 Quizzes 10% Midterm 30% Final 40%

4/22/2014

Introduction

Prerequisites
Basic Algebra and Calculus

Math Guide posted online

4/22/2014

Introduction

About your professor


Nationality: British Education: M.A. (Economics), University of Aberdeen,
M.Phil. (Economics), University of Cambridge, Ph.D. (Economics), University of St Andrews Current Position: Clinical Associate Professor of Economics Previous Positions: Teaching: University of Edinburgh (Scotland), Florida State, Georgia Tech, University of Colorado at Denver, SUNY, Buffalo, QUT (Australia), Economist: HSBC Markets, (British) Government Economic Service, Cambridge Econometrics

Today: introduction and some basic concepts (CPI)

Economics as a social science Methods and fields of study Basic concepts:


Normative versus positive analysis Market definition Prices & consumer price index (inflation)
4/22/2014 Introduction 8

Economics: Definition Economics is the study of how a society uses


its limited resources to produce, trade and consume goods and services

Limited budgets and time for consumers Limited ability to produce for producers

Micro versus Macro

Macroeconomics: branch of economics that


deals with aggregate economic variables, such as

Growth rate of GDP Interest Rates Unemployment Inflation

Micro versus Macro

Microeconomics: branch of economics that


deals with behavior of individual economic units consumers, firms, workers, investors and markets that these units comprise

Themes of Microeconomics
Workers, firms and consumers must make trade-offs
Do I work or go on vacation?

Do I purchase a new car or save my money?


Do we hire more workers or buy new machinery?

How are these trade-offs best made? Theories and models give insight by providing basic structure

Theories and Models

Theories are expressed in the form of economic


models

An economic model is a description of an economic


situation via words and mathematical expressions

Often mathematical expressions are depicted with


diagrams

Models as maps
Finding your way around NYU. Which map is more stylized? Which map has more information? Which map is more useful?

Economic Models: Description


A model usually consists of:

agents: their resources, objectives,


preferences, how they behave,

economic environment (markets, contractual


arrangements, other relevant institutions)

Economic Model: US Open

Some concepts:
1)Positive & Normative Analysis

Positive Analysis statements that describe the


relationship of cause and effect

Questions that deal with explanation and


prediction

Positive & Normative Analysis (ctd)

Normative Analysis - analysis examining


questions of what ought to be

Often supplemented by value judgments

2) Market

Collection of buyers and sellers, through their actual or potential interaction, determine the prices of products

Buyers: consumers purchase goods, companies


purchase labor and inputs

Sellers: consumers sell labor, resource owners


sell inputs, firms sell goods
4/22/2014 Introduction 19

What is a Market?

Many of the most interesting questions in economics concern the functioning of markets

Why are there a lot of firms in some markets and


not in others?

Are consumers better off with many firms?


Should the government intervene in markets?
4/22/2014 Introduction 20

The Extent of the Market


Are fast-food restaurants in Williamsburg
and the Village part of the same market?

Are laptops and Ipads part of the same


market or not?

3) Price

Price = signal to agents when making


decisions

Not always in a market environment: Centrally planned economies (Cuba,


North Korea, former Soviet Union)

by government or regulatory body

Real Versus Nominal Prices

Comparing prices over time requires


measuring prices relative to some overall price level

Nominal price is the absolute or current


dollar price of a good or service when it is sold

Real price is the price relative to an


aggregate measure of prices or constant dollar price

Real Versus Nominal Prices

Consumer Price Index (CPI) is often


used as a measure of aggregate prices

Records the prices of a large market

basket of goods purchased by a typical consumer over time Weighted by expenditure shares Percent changes in CPI measure the rate of inflation

Real Versus Nominal Prices

Calculating Real Prices


RealPrice
baseyear

CPIbase year CPIcurrent year

x Nominal Pricecurrent year

Real Price of College


Year Nom. Price CPI Real Price

Summary of Concepts

Definition of economics Micro vs. Macro Theories and models Positive vs. Normative Statements Markets Prices (nominal vs. real, price indexes)

Required Reading

Pindyck and Rubinfeld,


Microeconomics, 8th edition, Chapter 1, pp. 3-20.

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