Professional Documents
Culture Documents
LECTURE 1 - INTRODUCTION
OPTIMIZATION
MARGINAL ANALYSIS
EQUILIBRIUM
SCARCITY, CHOICE AND OPPORTUNITY COSTS
It will deal with the choices these economic agents make, the context in which they
make these choices, and the implications of these on society
The Course will also introduce you to the interventions that the Regulator/Government
can make in the markets when they fail
SCARCITY, CHOICE AND OPPORTUNITY COSTS
What is the opportunity cost of you attending a two year PGP course in IIM Nagpur?
If you start a manufacturing firm after your MBA, spend Rs. 1 crore on inputs and earn Rs.
1.08 crores in Revenues, what is your accounting profit? What is your economic profit?
Do you think there were more entrepreneurs from the past batches of older IIMs(A,B,C)
than the present batch? Why?
More on Opportunity Costs
Do you think MBA will sought out more when economy is in good shape or when it is in a bad
shape?
Hint: The number of applicants to MBA Programs for class of 2008-09 increased over the previous
year by 79% in the US, 77% in the UK, and 69% in the other European programs
Eisenhowers chance for peace speech from 1953:
The cost of one modern heavy bomber is this:
- a modern brick school in more than 30 cities.
- It is two electric power plants, each serving a town of 60,000 population.
- It is two fine, fully equipped hospitals.
- It is some 50 miles of concrete highway.
- We pay for a single fighter plane with a half million bushels of wheat.
- We pay for a single destroyer with new homes that could have housed more than 8,000 people.
SCARCITY, OPPORTUNITY COSTS, AND CHOICE FOR THE
FIRM AND A CONSUMER
25
Scarcity is reflected by the fact that the points beyond the
20
production possibility frontier (for the firm) and the budget line
Apple iPods
15
(for the consumer) are unattainable
10
5
4
In this context choices are made by consumers and firms on
3 the boundary. Even on the boundary, there are multiple
2
1
choices. Our course is about studying how firms and
0 consumers choose a particular point on the boundary
0 5 10 15 20 25 30
Shirts
OPTIMIZATION
Source: David Acemoglu, David Laibson and John A. List. (2016). Microeconomics. Pearson Education
Limited Global Edition
SUMMARY
Consumers
maximize
their levels
of
Opportunity satisfaction
Time, Money, and Costs Markets allow
other resources are
scarce While we do so, we interaction of
We make choices in account for opportunity the two and
presence of this costs (cost of the best we obtain an
scarcity foregone alternative) equilibrium
Scarcity
Producers
maximize
their profits