Lecture 1 Microeconomics

Lecture 1
Introduction

©2005 Pearson Education, Inc. &
©Y.E.Riyanto

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Themes of Microeconomics
 Microeconomics deals with limits that economic agents (consumers, workers, firms, etc) face:
Limited budgets
Limited time
Limited ability to produce

 How do we make the most of limits?
 How do we allocate scarce resources?
©2005 Pearson Education, Inc. &
©Y.E.Riyanto

Lecture 1

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Themes of Microeconomics

Limited resources (constraints)

Choices must be made Unlimited wants Maximizing your objective (e.g. utility & profits)

©2005 Pearson Education, Inc. &
©Y.E.Riyanto

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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 we going to manage these trade-offs? ©2005 Pearson Education, Inc. &
©Y.E.Riyanto

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Themes of Microeconomics
 Consumers
Limited incomes
How consumers maximize their well-being
(utility), using their preferences, to make decisions about trade-offs.

E.g. How do consumers make decisions about consumption (what to consume and how much? and savings?)
Consumer demand can be derived.
©2005 Pearson Education, Inc. &
©Y.E.Riyanto

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Themes of Microeconomics
 Workers
Individuals decide when and if to enter the work-force  Trade-offs

of working now or obtaining more education/training What choices do individuals make in terms of jobs or work places?
How many hours do individuals choose to work?  Trade-off of labor and leisure

Labor supply can be derived.
©2005 Pearson Education, Inc. &
©Y.E.Riyanto

Lecture 1

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Themes of Microeconomics
 Firms
What types of products do firms produce?
 Constraints

on production capacity & financial resources create trade-offs.

 Product

supply can be derived.

How many