INTRODUCTION TO MICROECONOMICS

ECO 110M
section 2345

Dr. Hamilton Lankford

 Business Administration 111A

 Hamp@albany.edu
 Office hours: Tuesday 10:30-11:30
Thursday 2:30- 3:30
and by appointment
Textbook:
Principles of Economics, 3rd edition, by Gregory
Mankiw
Study Guide for Principles of Economics by David
R. Hakes

Barnes & Nobles Mary Jane Books

Campus Center 215 Western Ave.
price: $107 price: $88
 Course Websites
My website:
www.albany.edu/faculty/hamp/aeco110m/

Textbook websites:
http://mankiwxtra.swlearning.com
www.harcourtcollege.com/econ/mankiw/
Read a good news source to keep up
with current economic issues.

New York Times

www.nytimes.com

Wall Street Journal

www.wsj.com

Economist Magazine
www.economist.com
 GRADING
 quiz Tuesday, Sept. 23 5%
 first exam Thursday, Oct. 9 20%
 quiz Thursday, Oct. 30 5%
 second exam Tuesday, Nov. 18 20%
 exercises and quizzes 15%
 cumulative final examination 35%
Monday, Dec. 15
This course is a social sciences general
education course intended to help students
better understand:
 that human behavior is subject to scientific
inquiry
 the difference between rigorous and
systematic thinking and uncritical thinking
about social phenomena
 the kinds of questions social scientists ask
and the ways they go about answering these
questions
 the major concepts, models and issues of at
least one discipline in the social sciences
 the methods social scientists use to explore
social phenomena.
 Economics

Economics is the study of how

individuals and society choose to
employ scarce resources to produce
and distribute goods and services.
Scarcity . . .

. . . means that society has limited

resources and therefore cannot
produce all the goods and services
people wish to have.
Economists study. . .
 Howindividuals and organizations
make decisions.

 How individuals and organizations

interact with each other.

 Theforces and trends that affect the

economy as a whole.
Microeconomics is concerned with
the behavior of individual units in
the economy.

Macroeconomics is concerned with

economic aggregates and the
economy’s overall performance.
The goal of this course is to help students
understand, and think critically about, basic
economic problems and current economic
issues.
 Understand the major economic problems
of modern society.
 Grasp basic economic principles and
concepts.
 Be able to use analytical tools to think
about economic problems and issues.
 The “economic way of thinking” ...
… is an approach emphasizing the process of
applying economic concepts and principles in
the analysis of economic issues and problems.
The study of economics is
unified by several central
ideas.

These ideas are reflected in the

following ten principles:
1. People face tradeoffs.
To get one thing, we usually
have to give up another thing.
 Guns v. butter
 Food v. clothing
 Leisure time v. work
 Efficiency v. equity

Making decisions requires trading

off one goal against another.
 2. The cost of something is
what you give up to get it.

Decisions require comparing costs and

benefits of alternatives.
 Whether to go to college or to work?
 Whether to study or go out on a date?
 Whether to go to class or sleep in?
 3. Rational people think at the
margin.

Marginal changes are small, incremental

adjustments to an existing plan of action.

People make decisions by comparing

costs and benefits at the margin.

Consider the decision regarding studying or

going out on a date.
4. People respond to incentives.

 Marginal changes in costs or benefits

motivate people to respond.
 The decision to choose one alternative
over another occurs when that
alternative’s marginal benefits exceed its
marginal costs!
 5. Trade can make everyone
better off.
 People gain from their ability to
trade with one another.
 Competition results in gains from
trading.
 Trade allows people to specialize in
what they do best.
6. Markets are usually a good
way to organize economic
activity.

In a market economy,
 households decide what to buy and
who to work for, and
 firms decide who to hire and what to
produce.
 7. Governments can
sometimes improve market
outcomes.
When the market fails (breaks down)
government often can intervene to
promote efficiency and equity.
 8. The standard of living
depends on a country’s
production.

Productivity is the amount of goods

and services produced from each
hour of a worker’s time.

Higher productivity  Higher standard of living

A Game of Jeopardy
Answer: compound interest
Question: What was Einstein’s answer to
the question,
‘what is the human race’s greatest
invention?’
‘what is the most powerful force in the
universe?’
‘what is the greatest law of the universe?’
annual rate of increase in productivity
1.60% 2.50%

years index of total output

passed 100.0 100.0
1 101.6 102.5
2 103.2 105.1
3 104.9 107.7
4 106.6 110.4
5 108.3 113.1
6 110.0 116.0
7 111.8 118.9
8 113.5 121.8
9 115.4 124.9
10 117.2 128.0

15 126.9 144.8

20 137.4 163.9

30 161.0 209.8

40 188.7 268.5

50 221.1 343.7
 RULE OF 72
A dollar amount growing at a compounded
percentage rate of r per year will double
in value in 72 years.
r
Example: $1000 earning a compound
interest rate of 8% will be worth
$2000 after 9 years,
$4000 after 18 years, … and
$16,000 after 36 years.
 9. Prices rise when the
government prints too much
money.
Inflation is an increase in the overall
level of prices in the economy.
 One cause of inflation is the growth in the
quantity of money.
 When the government creates large quantities
of money, the value of the money falls.
 10. Society faces a short-run
tradeoff between inflation and
unemployment.

Inflation  Unemployment
This is a short-run tradeoff!
 Summary

 When individuals make decisions,

they face tradeoffs.
 Rational people make decisions by
comparing marginal costs and
marginal benefits.
 Summary

 People can benefit by trading with

each other.
 Markets are usually a good way of
coordinating trades.
 Government can potentially improve
market outcomes.
The “economic way of thinking” is an
approach emphasizing the process of
applying economic concepts and principles
in the analysis of economic issues problems.
Why many students find economics difficult?

 Economics has its own language, employing

precise meanings of words.

Economics is at times abstract and employs

models as tools of analysis.
 The emphasis on understanding and
analysis has implications regarding
the way you study.

Be open to the study tips in the syllabus!

 Illustration of the effects of
incentives on behavior

Auction - Case 1
 oral sequential bids
($1.00 increments)
 highest bidder gets $20.00.
 highest bidder pays last bid.
 no collusion.
 Auction - Case 2

 oral sequential bids

($1.00 increments)
 highest bidder gets $20.00.
 Second highest bidder pays last bid.
 no collusion.