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1、CHAPTER 1 OUTLINE,1.1 The Themes of Microeconomics 1.2 What Is a Market? 1.3 Real versus Nominal Prices 1.4 Why Study Microeconomics?,Preliminaries, microeconomics Branch of economics that deals with the behavior of individual economic unitsconsumers, firms, workers, and investorsas well as the mark
2、ets that these units comprise., macroeconomics Branch of economics that deals with aggregate economic variables, such as the level and growth rate of national output, interest rates, unemployment, and inflation.,THE THEMES OF MICROECONOMICS,Trade Offs,Consumers,Workers,Firms,Consumers have limited i
3、ncomes, which can be spent on a wide variety of goods and services, or saved for the future.,Workers also face constraints and make trade-offs. First, people must decide whether and when to enter the workforce. Second, workers face trade-offs in their choice of employment. Finally, workers must some
4、times decide how many hours per week they wish to work, thereby trading off labor for leisure.,Firms also face limits in terms of the kinds of products that they can produce, and the resources available to produce them.,Prices and Markets,Microeconomics describes how prices are determined. In a cent
5、rally planned economy, prices are set by the government. In a market economy, prices are determined by the interactions of consumers, workers, and firms. These interactions occur in marketscollections of buyers and sellers that together determine the price of a good.,THE THEMES OF MICROECONOMICS,The
6、ories and Models,In economics, explanation and prediction are based on theories. Theories are developed to explain observed phenomena in terms of a set of basic rules and assumptions. A model is a mathematical representation, based on economic theory, of a firm, a market, or some other entity.,Posit
7、ive versus Normative Analysis, positive analysis Analysis describing relationships of cause and effect., normative analysis Analysis examining questions of what ought to be.,THE THEMES OF MICROECONOMICS,WHAT IS A MARKET?, market Collection of buyers and sellers that, through their actual or potentia
8、l interactions, determine the price of a product or set of products., market definition Determination of the buyers, sellers, and range of products that should be included in a particular market., arbitrage Practice of buying at a low price at one location and selling at a higher price in another.,C
9、ompetitive versus Noncompetitive Markets,Market Price, perfectly competitive market Market with many buyers and sellers, so that no single buyer or seller has a significant impact on price., market price Price prevailing in a competitive market.,WHAT IS A MARKET?,Market DefinitionThe Extent of a Mar
10、ket, extent of a market Boundaries of a market, both geographical and in terms of range of products produced and sold within it.,Market definition is important for two reasons: A company must understand who its actual and potential competitors are for the various products that it sells or might sell
11、 in the future. Market definition can be important for public policy decisions.,WHAT IS A MARKET?,Markets are usually defined in terms of therapeutic classes of drugs. For example, there is a market for antiulcer drugs that is very clearly defined.,Sometimes, however, pharmaceutical market boundarie
12、s are more ambiguous, like painkillers. There are many types of painkillers, and some work better than others for certain types of pain.,WHAT IS A MARKET?,In 1990, the Archer-Daniels-Midland Company (ADM) acquired the Clinton Corn Processing Company (CCP). The U.S. Department of Justice (DOJ) challe
13、nged the acquisition on the grounds that it would lead to a dominant producer of corn syrup with the power to push prices above competitive levels. ADM fought the DOJ decision, and the case went to court. The basic issue was whether corn syrup represented a distinct market. ADM argued that sugar and
14、 corn syrup should be considered part of the same market because they are used interchangeably to sweeten a vast array of food products.,WHAT IS A MARKET?,REAL VERSUS NOMINAL PRICES, nominal price Absolute price of a good, unadjusted for inflation., real price Price of a good relative to an aggregat
15、e measure of prices; price adjusted for inflation., Consumer Price Index Measure of the aggregate price level., Producer Price Index Measure of the aggregate price level for intermediate products and wholesale goods.,The real price of eggs in 1970 dollars is calculated as follows:,While the nominal
16、price of eggs rose during these years, the real price of eggs actually fell.,REAL VERSUS NOMINAL PRICES,Real versus Nominal Prices,The real price of eggs in 1990 dollars is calculated as follows:,Real versus Nominal Prices,The percentage change in real price is calculated as follows:,REAL VERSUS NOMINAL PRICES,The Minimum Wage,In nominal terms, the minimum wage has increased steadily over the past 70 years. However, in real terms i
