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Lecture # 01Lecture # 01

IntroductionIntroduction

Lecturer: Martin ParedesLecturer: Martin Paredes

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1. Definition of Microeconomics

2. Who Should Study Microeconomics?

3. Course Information

4. Microeconomic Modeling

• Elements of models

• Solving the models

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• 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.

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Example: The Railroad Industry in the US

74.9% of all freight, 1929 39.8% of all freight, 1970

1970’s: poor profits, bankruptcies, inability to invest

1980’s: loosened regulation and union rules improved profitability

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• 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!

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Main (required) textbook:David Besanko & Ronald

Braeutigam, Microeconomics John Wiley &

Sons, 2nd Ed., 2005.Ancillaries:

Study Guide APLIA: Online resources and problem sets.

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Alternative textbooks (“at your own risk”) B. Curtis Eaton, Diane Eaton, & Douglas Allen,

Microeconomics: Theory With Applications, Prentice Hall, 6th Edition, 2004.

Robert Pyndick & Daniel Rubinfeld, Microeconomics Prentice Hall, 6th Edition, 2005.

Andrew Schotter, Microeconomics: a Modern Approach, Addison Wesley, 3rd Edition, 2001.

Hal Varian, Intermediate Microeconomics: a Modern Approach, W.W. Norton, 6th Edition, 2006.

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Course Website:

http://www.tcd.ie/Economics/staff/paredesm/~EC2010

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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

Lecture from January 9th to be rescheduled after Reading Week

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Class Meetings

Day Time Location Monday 3:00 PM to 4:00 PM Arts 4050B Tuesday 12:00 PM to 1:00 PM Arts 4047 Tuesday 5:00 PM to 6:00 PM Arts 3051 Wednesday 1:00 PM to 2:00 PM AP2.03 Thursday 11:00 AM to 12:00 AM Arts 5039 Friday 9:00 AM to 10:05 AM Arts 3126

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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

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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

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Course Assessment: Two Examinations. Hilary Term Test: 20% Final Exam: 60%

Several homeworks to be assigned during the semester on a weekly basis

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The Final Exam includes both Macro & Micro in equal proportions Five questions in Micro:

One compulsory questionAnswer two out of the remaining four.

Five questions in Macro: One compulsory questionAnswer two out of the remaining four.

•Answer a total of 6 questions

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1. Introduction Ch. 1.2. Demand and Supply Ch. 2.3. Consumer Theory Ch. 3, 4 &

5.4. Production and Cost Theory Ch. 6, 7 &

8.

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5. Perfect Competition Ch. 9 & 10.6. Monopoly Ch. 11 & 12.7. Imperfect Competition, Game Theory and

Strategic Behavior Ch. 13 & 148. Risk and Information Ch. 159. General Equilibrium Theory Ch. 1610. Externalities and Public Goods Ch.

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

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Example: World-wide market for unprocessed coffee beans, December, 1997

Price per pound

Quantity, pounds

Supply (P,W)

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Example: World-wide market for unprocessed coffee beans, December, 1997

Price per pound

Quantity, pounds

Supply (P,W)

Demand (P,I)

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Elements of Models

Need to specify: Choices/Alternatives Assumptions

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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.

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Definition: The Opportunity Cost of a resource is the value of that resource in its best alternative use.

Example: €100K in facilities yields €800K in revenue€100K in R&D yields €1M revenue

Opportunity cost of investing in facilities = €1M

Opportunity cost if investing in R&D = €800K

Note: Opportunity cost depends on how we specify alternatives.