Intermediate Microeconomics

Lecture 1

Chapter 1: Thinking Like an Economist

Paul Schure, University of Victoria, Econ 203

Overview and Chapter 1: Thinking Like an Economist Slide 1

What is Microeconomics?

[Defn Frank-Parker] Microeconomics is the study of how people

choose under conditions of scarcity and the consequences of
their choices.
Scarcity refers to the limited nature of resources:
Time
Money
Capacity of your stomach!!

Paul Schure, University of Victoria, Econ 203

Overview and Chapter 1: Thinking Like an Economist Slide 2

Overview Intermediate Microeconomics I

Ch9: technology the

production function

Ch3: individual demand

(see also Ch7 + Ch8)

Ch10: the cost function

Ch4 + Ch5: market demand

(see also Ch6A)

Ch16.1:
Trade

Ch12: monopolistic markets

Ch13.5-13.11:
game theory
Ch13: oligopolistic markets

Ch6A:
demand under
asymmetric
information

Paul Schure, University of Victoria, Econ 203

Market performance:
Welfare analysis
(consumer +
producer surplus)

Ch2 + Ch11: perfectly

competitive markets

Overview and Chapter 1: Thinking Like an Economist Slide 3

What is Microeconomics?
A common rule If something is good, do more of it
This is called the cost-benefit approach (Section 1.1)
Should I do activity X?
Should I see Spider-Man tonight?
Should eat one more waffle?

B(X)>C(X), do X; otherwise, dont.

and you apply using marginal analysis (Section 1.4)
Whether to do a bit more or a bit less of an activity?

Should I spend one more hour watching TV?

Compare: Marginal Benefit & Marginal Cost

Paul Schure, University of Victoria, Econ 203

Overview and Chapter 1: Thinking Like an Economist Slide 4

How much Joanie talk to Hal each month?

Paul Schure, University of Victoria, Econ 203

Overview and Chapter 1: Thinking Like an Economist Slide 5

Four pitfalls of the cost-benefits approach (Section 1.3)

Pitfall 1: Ignoring opportunity costs

The cost of taking an action, as measured by the benefit forgone by not taking
the best alternative action.
Watching Star-Wars or Studying Economics

Pitfall 2: Failure to ignoring sunk costs

Pitfall 3: Measuring costs and benefits as proportions

Pitfall 4: Failure to Understand the average-marginal

distinction

Paul Schure, University of Victoria, Econ 203

Overview and Chapter 1: Thinking Like an Economist Slide 6

What is Microeconomics?
Study hints Chapter 1
Read this chapter and re-read it at least twice more during the
term. The Chapter makes more sense as we go along
Maybe the catch-all phrase of the chapter is: Individual
agents respond to incentives. These incentives may
conflict with the interest of others and even society as a whole
(see for example Section 1-5 and Economic Naturalist 1-8)
During your entire studies at UVic and beyond:
Try to be an economic naturalist!

Paul Schure, University of Victoria, Econ 203

Overview and Chapter 1: Thinking Like an Economist Slide 7