Lecture 01 Introduction Lecturer Martin Paredes 1 1

Lecture # 01 Introduction Lecturer: Martin Paredes 1

1. Definition of Microeconomics 2. Who Should Study Microeconomics? 3. Course Information 4. Microeconomic Modeling • Elements of models • Solving the models 2

• Microeconomics studies economic behavior of individual economic decision-makers • E. g. : consumers, workers, firms, managers. • This study involves: • • The behavior of these economic agents on their own The way their behavior interacts to form larger units, such as markets. 3

Example: The Railroad Industry in the US 74. 9% of all freight, 1929 39. 8% of all freight, 1970’s: poor profits, bankruptcies, inability to invest 1980’s: loosened regulation and union rules improved profitability 4

• Analysis of this issue requires Microeconomic tools. • Who are the actors who need to know something about Microeconomics? · · · Managers Union Leaders / Workers Lenders Policy Makers …and beyond! 5

l Main (required) textbook: David Besanko & Ronald Braeutigam, Microeconomics John Wiley & Sons, 2 nd Ed. , 2005. l Ancillaries: ¡ Study Guide ¡ APLIA: Online resources and problem sets. 6

l Alternative textbooks (“at your own risk”) B. Curtis Eaton, Diane Eaton, & Douglas Allen, Microeconomics: Theory With Applications, Prentice Hall, 6 th Edition, 2004. ¡ Robert Pyndick & Daniel Rubinfeld, Microeconomics Prentice Hall, 6 th Edition, 2005. ¡ Andrew Schotter, Microeconomics: a Modern Approach, Addison Wesley, 3 rd Edition, 2001. ¡ Hal Varian, Intermediate Microeconomics: a Modern Approach, W. W. Norton, 6 th Edition, 2006. ¡ 7

l Course Website: http: //www. tcd. ie/Economics/staff/paredesm/~EC 2010 8

l Lecture Meetings ¡ Tuesdays from 10: 00 AM to 11: 00 AM ¡ Wednesdays from 5: 00 PM to 6: 00 PM ¡ Location: Arts building, room 1008 l Lecture from January 9 th to be rescheduled after Reading Week 9

l Class Meetings 10

l Office Hours - Martin Paredes: ¡ Mondays from 3: 00 PM to 4: 00 PM ¡ Thursdays from 11: 30 AM to 12: 30 PM ¡ Office: Arts Building, room 3012 11

l Office Hours – Teaching Assistants: ¡ Marta Zieba: Mondays, 11: 00 AM to 1: 00 PM ¡ Padraig Flynn: Fridays, 10: 00 AM to 12: 00 PM ¡ Office: Arts Building, room 3002 12

l Course Assessment: Two Examinations. ¡ Hilary Term Test: 20% ¡ Final Exam: 60% l Several homeworks to be assigned during the semester on a weekly basis 13

l The Final Exam includes both Macro & Micro in equal proportions ¡ Five questions in Micro: One compulsory question l Answer two out of the remaining four. l ¡ Five questions in Macro: One compulsory question l Answer two out of the remaining four. l • Answer a total of 6 questions 14

1. 2. 3. 4. Introduction Ch. 1. Demand Supply Ch. 2. Consumer Theory Ch. 3, 4 & 5. Production and Cost Theory Ch. 6, 7 & 8. 15

5. Perfect Competition Ch. 9 & 10. 6. Monopoly Ch. 11 & 12. 7. Imperfect Competition, Game Theory and Strategic Behavior Ch. 13 & 14 8. Risk and Information Ch. 15 9. General Equilibrium Theory Ch. 16 10. Externalities and Public Goods Ch. 17 16

• Models are simplifications…like maps • Resemble reality • Understandable • Appropriate scale (not all details) 17

Price per pound Example: World-wide market for unprocessed coffee beans, December, 1997 Supply (P, W) Quantity, pounds 18

Price per pound Example: World-wide market for unprocessed coffee beans, December, 1997 Supply (P, W) Demand (P, I) Quantity, pounds 19

Elements of Models · Need to specify: · Choices/Alternatives · Assumptions 20

Definition: • Variables that have values that are taken as given in the analysis are exogenous variables. • Variables that have values that are determined as a result of the workings of the model are endogenous variables. 21

Definition: The Opportunity Cost of a resource is the value of that resource in its best alternative use. Example: € 100 K in facilities yields € 800 K in revenue € 100 K in R&D yields € 1 M revenue Opportunity cost of investing in facilities = € 1 M Opportunity cost if investing in R&D = € 800 K Note: Opportunity cost depends on how we specify alternatives. 22