Econ 110 Principles of

Microeconomics

Welcome!
 Economics is common sense
made difficult

As seen by an undergraduate student

Dr. Anwar Al-Shriaan
Economics Department

Office hours:
Sundays and Tuesdays 12:00 12:50 pm and
by appt.
 Today
Syllabus
Intro to economics
 What will we be studying?
Eco 110 is the first economic theory course
basic foundation of economics
tools of discipline
 Look at
buyer and seller behaviour (markets)
role of government in markets
consumer choice
producer behaviour
determinants of income and poverty
Why have energy prices risen
(fallen)?
Why does price control not work?
Is Microsoft a monopoly?
Why do we care?
Is college worth the cost?
What causes the gender wage gap?
Why do airlines require a Saturday
night stay for a low fare?
 Course Materials
Required:
McConnell and Brue Economics, 16th ed
 Recommended
course web site
URL at top of the syllabus
contains
course information

exam study guides

TAs
 lecture notes
PowerPoint slides
 Email list
I send email about
Announcements
Course information
Do you prefer Emails or Facebook groups .
 TA
Check my website
But please see me too!
 Grading Policy

Midterm 1 30%
Midterm 2 30%
Recitation and Participations 10%
Final 30%
 Grading Policy
Letter grades will be assigned as
follows:
94.00 100.0 % A
90.00 93.99 % A-
86.00 89.99 % B+
83.00 85.99 % B
80.00 82.99 % B-
78.00 79.99 % C+
73.00 77.99 % C
70.00 72.99 % C-
66.00 69.99 % D+
60.00 65.99 % D
59.99 0.00 % F
 Grading Policy

Your Final Grades: 1st Mid + 2nd Mid + Part

+ Final.
If Your Participation > 8.5 you will have
Extra credits as follows:

Your Final Grades: 20% X Max (1st Mid, 2nd

Mid, Final)
 Grading Policy
Your Final Grades: 1st Mid + 2nd Mid + TA + Part + Final.

If Your Participation > 8.5 you will have Extra credits as follows:

Your Final Grades: 20% X Max (1st Mid, 2nd Mid, Final)

1st Mid 2nd Mid Part Final Total

(25) (25) (10) (40)

22 24 9 28 82 B-

84% 88% 70%

86 B+
1st Mid 2nd Mid Part Final Total
(25) (25) (10) (40)

15 17 9 36 77 C

82.4 B-
60% 68% 90%
1st Mid 2nd Mid Part Final Total
(25) (25) (10) (40)

15 17 6 40 76 C

68% 100% 76

15 17 9 40 80 B-

86 B+
 final exam
cumulative
 Makeup's
Usually I dont do it
planned absence: 1 weeks notice
emergencies: case-by-case
must be an excused absence!
must be documented!
makeup's may be essay exams or I may re weight
other exams
 Attendance
regular attendance is expected
you are responsible for information in class
attendance is necessary to earn extra credit.
 Please be respectful of your
classmates
be on time
do not talk during lecture
do not have your phone on
 Cheating
you cheat,
I catch you,
you fail the course

programmable calculators (e.g. TI-

83),translators, phones, PDAs, etc.
are NOT allowed in exams
 Course Schedule
in syllabus
note exam dates,
note the final exam date & time
 Tips for success
come to class with lecture notes to follow
read the book!!
weekly look-through
ask for help
ME or
the TA or
ME
use available resources
course web site
Why you should try to learn something
in this course.
Percentage of wage dispersion explained by skill factors.

Huge variation in
earnings of low vs.
high-skilled
college graduates
 if you need special accommodations, see me
if you are having problems in the course, see me
sooner NOT later
Some definitions of economics
 Economics is a study
of mankind in the
ordinary business of life

Alfred Marshall
 "the purpose of studying
economics is not to acquire a set
of ready-made answers to
economic questions, but to learn
how to avoid being deceived by
economists."

Joan Robinson
 Economics is what economists
do
Jacob Viner
 Economics (1)

Study of the choices people make to attain

their goals given their scarce resources.
Economics: Foundations and Models
1. What do economists study?

gasoline prices, inflation, housing markets, international

trade, income inequality, sports, families, smoking, health
care, happiness

decision-making or choices

2. How do they do it?

by using theories and models

theories are based on assumptions

What makes a good theory or a
model?

Models are not judged by their

realism but by their usefulness

What is the most useless map in

the world?
To be useful a model has to be refutable
 Why study theory?

I dont know how it is in theory but

here is what I know from my 20 years
of experience will happen

Laura, Executive MBA student

Theory saves time!

 Learning Objective 1.3

Making When Economists Disagree:

the A Debate over Outsourcing
Connection

Does outsourcing by U.S.

firms raise or lower incomes in
the United States?
 Economics (2)

Study of the choices people make to attain

their goals given their scarce resources.
 Economics

Scarcity Choices

When the price is zero People behave as if

there is not enough for they are comparing
everyone the costs and
benefits

Unlimite Benefits
d wants
Limited Costs
availabilit
y
 Economics

Scarcity

Everything has alternative

uses

Tradeoffs

Opportunity cost
Economics

Choices

People are rational when they

behave as if they were comparing
costs and benefits

People respond to incentives

Decisions are made on the margin

 as if

getting out of bed in the

morning and making breakfast
involves more complex decisions
than the average game of chess.
(Will that fries egg kill me in
twenty-eight years?)
Charles Wheelan
 Economics (3)

Study of the choices people make to attain

their goals given their scarce resources.
The Economic Problem That Every
Society Must Solve
Trade-offs force society to make choices, particularly when
answering the following three fundamental questions:

1 What goods and services will be produced?

2 How will the goods and services be produced?
3 Who will receive the goods and services produced?
The Economic Problem That Every
Society Must Solve
Centrally Planned Economies versus Market Economies

Centrally planned economy An

economy in which the government
decides how economic resources will be
allocated.

Market economy An economy in which

the decisions of households and firms
interacting in markets allocate
economic resources.
The Economic Problem That Every
Society Must Solve
The Modern Mixed Economy

Mixed economy An economy in which

most economic decisions result from
the interaction of buyers and sellers in
markets but in which the government
plays a significant role in the allocation
of resources.
 Economic Models
Normative and Positive Analysis

Positive analysis Analysis

concerned with what is.

Normative analysis Analysis

concerned with what ought to
be.

Dont Let This Happen to YOU!

Dont Confuse Positive Analysis with Normative Analysis
 The Market

2
C H APT E R
System and
the Circular
Flow
 SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
1. LAND

2. CAPITAL

HUMAN RESOURCES
3. LABOR
4. ENTREPRENEURIAL ABILITY
Resource payments: correspond to resource
categories
PROPERTY RESOURCES
RENTAL
LAND
INCOME
INTEREST
CAPITAL
INCOME
HUMAN RESOURCES

LABOR WAGES
PROFIT &
ENTREPRENEUR
LOSS
Macroeconomics Starts Here
 Economic Systems
Definition: A particular set of institutional
arrangements and a coordinating mechanism to
respond to the economizing problem.
Economic systems differ as to:
1) who owns the factors of production
2) the method used to motivate, coordinate, and
direct economic activity.
 The Command System
The government owns most property resources
and economic decision making occur through a
central economic plan.
The central planning board determines
production goals for each firm and resources to
be allocated.
 The Market System
There is private ownership of resources.
Markets and prices coordinate and direct
economic activity.
Each participant acts in its own self-interest.
In pure capitalism the government plays a very
limited role.
Characteristics of the Market System
Private Property.
Freedom of firms to choose.
Self interest.
Competition.
Markets and prices.
Technology and capital goods.
Specialization.
Use of money.
Active, but limited government.
 The Circular Flow Model

There are two groups of decision makers in

the private economy: households (resource
owners) and businesses (resource users)

The market system (resource markets and

product markets) coordinates these decisions.
What happens in the resource markets?
a. Households sell resources directly or indirectly
(through ownership of corporations) to businesses.

b. Businesses buy resources in order to produce

goods and services.

c. Interaction of these sellers and buyers

determines the price of each resource, which in
turn provides income for the owner of that
resource.

d. Flow of payments from businesses for the

resources constitutes business costs and resource
owners incomes.
What happens in the product markets?
a. Households are on the buying side of these
markets, purchasing goods and services.

b. Businesses are on the selling side of these markets,

offering products for sale.

c. Interaction of these buyers and sellers determines

the price of each product.

d. Flow of consumer expenditures constitutes sales

receipts for businesses.
CIRCULAR FLOW MODEL

RESOURCE
MARKET

BUSINESSES HOUSEHOLDS

PRODUCT
MARKET
CIRCULAR FLOW MODEL

RESOURCE
MARKET

RESOURCES INPUTS

BUSINESSES HOUSEHOLDS

PRODUCT
MARKET
CIRCULAR FLOW MODEL
$ COSTS $ INCOMES
RESOURCE
MARKET

RESOURCES INPUTS

BUSINESSES HOUSEHOLDS

GOODS & GOODS &

SERVICES SERVICES

PRODUCT
MARKET
CIRCULAR FLOW MODEL
$ COSTS $ INCOMES
RESOURCE
MARKET

RESOURCES INPUTS

BUSINESSES HOUSEHOLDS

GOODS & GOODS &

SERVICES SERVICES

PRODUCT
MARKET
CIRCULAR FLOW MODEL
$ COSTS $ INCOMES
RESOURCE
MARKET

RESOURCES INPUTS

BUSINESSES HOUSEHOLDS

GOODS & GOODS &

SERVICES SERVICES

PRODUCT
MARKET
$ REVENUE $ CONSUMPTION
CIRCULAR FLOW MODEL
$ COSTS $ INCOMES
RESOURCE
MARKET

RESOURCES INPUTS

BUSINESSES HOUSEHOLDS

GOODS & GOODS &

SERVICES SERVICES

PRODUCT
MARKET
$ REVENUE $ CONSUMPTION
More Realistic Circular Flow
Macroeconomic Policies
 Limitations of the model:
1. Does not depict transactions between
households and between businesses (inter-
businesses).

2. Ignores government and the rest of the

world in the decision-making process (we
will take care of them later on).

3. Does not explain how prices of products and

resources are actually determined.