3360 Unit 2.1 20146-I-18

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ENGR 3360U Winter 2012Unit 2.1

Introduction to Microeconomics

Dr. J. Michael Bennett, P. Eng., PMP,UOIT,

Version F

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Unit 2.1 – Introduction to Microeconomics

Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$2

%&'n#e Record

Version F Initi'( %re'tion

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)e'rnin# *+,ecti-es

Underst'nd t&e +'sic conce ts o/ EconomicsUnderst'nd m'r ets 'nd &'t dri-es t&em

Underst'nd &'t dri-es economists

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Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$

%ourse *ut(ine /or Unit 2

2.1 Microeconomics

2.2 M'croeconomics2.3 Mone4 'nd t&e 'n o/ %'n'd'

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'sic %o-er'#e o/ Microeconomics

2.1.1 %ost$ ene/it "rinci (e2.1.2 &ree %ommon "it/'((s

2.1.3 "roduction "ossi+i(ities2.1. )' o/ Diminis&in# Returns2.1.5 7u (4 'nd Dem'nd

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2.1.1 %ost$ ene/it "rinci (e

&e 7c'rcit4 "ro+(em"eo (e &'-e +ound(ess needs 'nd 'nts +ut t&e

'-'i('+(e resources 're (imited 8e-en /or i(( G'tes97o muc& ine! so (itt(e time

&ere 're 't (e'st 10!000 commerci'( ines outt&ere. :o to /ind t&e one 4ou (o-e +est; tr4 t&em '((. 8

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Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$?

%ost$ ene/it "rinci (e

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Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$A

Economic 7ur (us

Economic 7ur (us is t&e M*NEB +ene/it o/ t&e'ction minus its cost

C &'t is not me'sur'+(e! m' e me'sur'+(eG'(i(eoCNot e-er4t&in# t&'t counts c'n +e me'sured>

not e-er4t&in# t&'t is me'sured! countsEinsteinM'4 +e ot&er re'sons /or doin# ' t&in# 8Et&ics9

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* ortunit4 %ost

&e -'(ue o/ t&e ne@t$+est '(tern'ti-e t&'tc'nnot +e done +ec'use 4ou 're doin# t&is

E@'m (e7u ose 4ou c'n +u4 'n +o@ on c'm us /or

100. ut W'(M'rt se((s it /or A0 in t&e cost o/ #oin# to W'(M'rt is 110 so

4our economic sur (us is $ 10.

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ime is Mone4

In c'(cu('tin# Economic 7ur (uses! +e sureto consider B*UR time.

W&'t 're 4ou ort& er &our;In t&e re-ious c'se! 4ou cou(d '( toW'(M'rt. ut t&in o/ 4our time cost

W&'t does it cost 4ou to /'i( ' 4e'r 'tU*I ;

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%ost o/ F'i(in# ' 4e'r in En#ineerin#

o/ tuition! +oo s! residence H 20 *% o/ M'cD=s H 3581098698109 H 21

)ost o/ ('st 4e'r=s s'('r4 H 135 ot'( %ost H 1?6 8*U%: 9


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1. I#norin# * ortunit4 %osts

Bou 're sc&edu(ed to or 't M'cDon'(d=s /or7'turd'4. Bour +est +udd4 'nts 4ou to #o deer$

&untin# u 't o+c'#eon inste'd. :e 'r#ues t&'t4ou i(( #et 100 ounds o/ -enison! s'-in# 4ou '(ot in +ee/ costs 8 3 d9.

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2. F'i(ure to I#nore 7un %osts

C7un costs 're irretrie-'+(e costs.Bou +u4 ' tic et to &e'r rocco(i 7 e'rs in

* t&rou#& ic etron /or 200. &'t is ' suncost 8'ssumin# t&'t 4ou do not sc'( it9Bou 're o//ered t&e c&'nce to /(i +ur#ers 't

Mi e4Ds 't t&e s'me time /or 60.Bour *% is 60 8not 200K609 +ec'use t&e

200 is sun

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3. F'i(ure to underst'nd t&e '-er'#e'nd m'r#in'( cost distinction

M'r#in'( cost is t&e incre'se in costresu(tin# in doin# one 'ddition'( unit o/

'cti-it4M'r#in'( +ene/it dittoE@'m (e N

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N

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Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$1?

Fi@ed 'nd V'ri'+(e %osts

e sure not to con/use t&emJoinin# Good)i/e costs 100 'nnu'( /ee

(us 25 mont&I/ t&e /ee is non$re/und'+(e! it is ' /i@ed 'ndsun cost

I/ it is re/und'+(e! it is on(4 /i@ed.

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Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$1A

2.1.3 "roduction "ossi+i(ities

2.1.3.1 E@c&'n#e 'nd * ortunit4 %ost2.1.3.2 "roduction "ossi+i(ities

2.1.3.3 %om 'r'ti-e

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2.1.3.1 E@c&'n#e 'nd * ortunit4 %ost

W&en t o or more entities &'-e di//erento ortunit4 costs /or er/ormin# di//erentt's s! t&e4 c'n incre'se t&e tot'( -'(ue o/#oods 'nd ser-ices +4 tr'din# it& e'c&ot&er "rinci (e o/ %om 'r'ti-e

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Fric 'nd Fr'c

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7 eci'(i 'tion

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2.1. 3.2 "roduction "ossi+i(ities

7'(im (i-es on :'ns Is('nd 'nd is t&e on(4or er t&ere

:e c'n &'r-est 1.5 # mo((us s &our or &ec'n ic 3 # +(ue+erries &our

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7'(im=s "roduction "ossi+i(it4 %ur-e12

0

3 M o (

( u s 0 s

8 0 # J

d ' 4 9

(ue+erries 8 # d'496 1A 2

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M'(im=s "roduction "ossi+i(it4 %ur-e12

0

3 M o (

( u s 0 s

8 0 # J

d ' 4 9


U it 2 1 I t d ti t Mi i

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%om+o "roduction "ossi+i(it4 %ur-e

12

0

3 M o (

( u s 0 s

8 0 # J d ' 4

9


1A

U it 2 1 I t d ti t Mi i

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&e4 "roduce M'n4 '+ies too

0

M o (

( u s 0 s

8 0 # J d ' 4

9

(ue+erries 8 # d'49

<

E

D

%

Unit 2 1 Introduction to Microeconomics

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*ut 'rd s&i/t o/ ""% 8te incre'se /or +ot&9

0

M o (

( u s 0 s

8 0 # J d ' 4

9

(ue+erries 8 # d'49


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*ut 'rd s&i/t o/ ""% 8te incre'se in s9

0

M o (

( u s 0 s

8 0 # J d ' 4

9

(ue+erries 8 # d'49


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F(o o/ Income 'nd E@ enditure)'+our M'r et

:ouse&o(ds Firms

*ut ut M'r ets

$ se(( ('+our$ +u4 #oods 'nd

ser-ices

$ /irms su (4 GO7

$ &ouse&o(ds +u4 GO7

$ roduce 'ndse(( GO7$ &ire ('+our

$ &ouse&o(ds su (4('+our

$ /irms &ire ('+ourers

'#es recei-ed

('+our su (ied

'#es 'id

('+our &ired

GO7 su (ied

/irm /rom GO7 &ouse&o(d on GO7

GO7 'cPuired


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2.1.3.3 %om 'r'ti-e

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2.1. )' o/ Diminis&in# Returns

C/or 'n4 roducti-e enter rise! &en 't (e'st1 in ut is &e(d const'nt &i(e ot&er in uts

're incre'sed! t&ere i(( +e 'n e-entu'(dec(ine in t&e r'te o/ e@tr' out ut


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Unit 2 1 – Introduction to Microeconomics

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Unit 2.1 Introduction to Microeconomics

F'rmer E@'m (e

YEAR LAND # of WORKERS PRODUCTION DELTA

1 10 1 1000

2 20 2 2000 1000

3 30 3 3200 1200

0 600 1 005 50 5 6200 1600

6 60 6 A000 1A00

? ?0 ? 10000 2000


F'rmer Fred &'s 10 'cres. :e c'n &'r-est 1000 +us&e(s o/ &e't&imse(/. 4 'ddin# more or ers 'nd

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)' o/ Incre'sin# Returns to 7c'(e

I/

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2.1.5 7u (4 'nd Dem'nd

U unti( 1 0! t&e R*R o/ 'n I Mm'in/r'me 's A0 . I/ it cost t&em 1mi((ion do(('rs to +ui(d! t&e4 c&'r#ed 1.AMW&'t ou(d 4ou '4 /or ' 32G memor4stic ; < ne rinter; < ne (' to ;

:o does ' com 'n4 rice its roduct;< (e 'nd t&eir ne i$ &one /or e@'m (e;


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Musin#s

7u (4 – /orces t&'t ur#e eo (e to constructsomet&in#Dem'nd – mone4 i((in# to +e s ent +4 +u4ers

/or t&'t t&in#7e((ers$ u4ers

Mono o(4 – on(4 one se((er rice (ummets


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7e((in# ur#ers in *

I/ orontoni'ns ou(d '4 100 +ur#er We=d '(( +e &' in# +ur#ers on Bon#e 7t

&en t&e su (4 ou(d e@ceed t&e dem'nd 8&o m'n4 +ur#ers c'n ' erson e't; %'n=t store t&em9"rices ou(d /'((We=d come +'c to c('ssI/ #'s rices dro ed to 50 cents ' (itre> 5.00 ' (itre;:o to Pu'nti/4 t&is e//ect;

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Version F Dr. J.M. ennett! ".En#.! "M" ENGR 3360U En# Eco2.1$ 0

&e Dem'nd %ur-e

3

2

1

012A 2016

Dem'nd

Dem'nded Su'ntit4 81000s o/ &'m+ur#ers d'49

" r i c e

8 G J u r # 9

D


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&e EPui(i+rium "oint

3

2

1

012A 2016

Dem'nd

Su'ntit4 81000s o/ &'m+ur#ers d'49

" r i c e

8 G J u r # 9

7u (4


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&e EPui(i+rium "oint

3

2

1

012A 2016

Dem'nd


" r i c e

8 G J u r # 9

E@cess 7u (4 o/A +ur#s

E@cess Dem'nd o/A +ur#s


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7u (4 O Dem'nd

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More )i e(4 7&' e


<

%

SU

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More Dem'nd 7&' es


< " R I % E

2

1

5 6

T

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E@treme Dem'nd E('sticit4

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SU

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E@treme 7u (4 E('sticit4

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SU

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E@treme 7u (4 E('sticit4


SU

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De/initions o/ "rice E('sticit4

"rice e('sticit4 o/ dem'nd H ercent'#e c&'n#ein Pu'ntit4 resu(tin# /rom ' 1 c&'n#e in rice

E@'m (e i/ t&e rice o/ #'s /'((s 1 'nd t&e dem'ndrises 2 ! H 2 8 e i#nore t&e minus si#n9

E('stic i/ 1Ine('stic i/ 1Unit e('stic i/ H1


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*+ser-'tions on E('sticit4

I/ 1! 'n incre'se in rice i(( reduce tot'(re-enue8O --9

I/ 1! 'n incre'se in rice i(( incre'setot'( re-enue8O --9I/ H1! 'n incre'se in rice i(( (e'-e tot'(

re-enue un'//ected 8O --9


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4 ic'( E@'m (es

Green e's 2.A0Rest'ur'nt me'(s 1.63

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7umm'r4

&emarket /or ' #ood is t&e tot'(it4 o/ '(( 'ctu'( 'nd otenti'( +u4ers 'nd se((ers.For ' #i-en rice! t&e supply curve s&o s t&e Pu'ntit4o/ t&'t #ood t&'t t&e se((ers 're i((in# to cre'te 'ndse((

&edemand curve is t&e Pu'ntit4 t&'t t&e +u4ers i((

+u4 't t&'t rice Market equilibrium is &ere t&e t o cur-es cross> +u4ers= Pu'ntit4$ rice$ t. H se((ers= Pu'ntit4$ rice$ t.


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Re'c&in# EPui(i+rium

M'4 t' e time> cur-es m'4 s&i/tFor e@'m (e

Free e in %'(i/orni'7u (4 t'n s! dem'nd is const'nt! rice so'rs

ut &'rd to incre'se su (4 8need to ('nt moretrees etc.9


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%&'n#es in t&e EPui(i+riums

&'t is> s&i/ts in t&e cur-es N* c'used +4 rice%'used +4 im ro-ed roduction tec&niPues%'used +4 c&'n#es in t'stes! orries o-er tr'ns$/'t! +'d e't&er! etc.

Note t&e termino(o#4Incre'se in Pu'ntit4 dem'nded 8s(ide do n t&e cur-e9

st'tic rices dem'ndIncre'se in Dem'nd (ine s&i/ts to t&e ri#&t

rices dem'nds s&i/t


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Incre'se in Dem'nd

3

2

1

012A 2016

Incre'se inDem'nd


" r i c e

8 G J u r # 9

D DT

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7&i/ts in t&e 7u (4 %ur-e

3

2

1

012A 2016

Dem'nd


" r i c e

8 G J u r # 9

7 7T


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7u ose t&'t Norm'n Nerdo de-e(o s 'ne rocess to t' e ' (i-e co in 't one end'nd s it out +ee/ 'tties 't t&e ot&er

ecomes 50 c&e' er to m' e &'m+ur#erst&'n +e/ore

&e &o(e su (4 cur-e s&i/ts to t&e ri#&t


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%'nonic'( Ru(es on 7u (4 O Dem'nd7

D

"

SSu'ntit4

" r i c e

7

D

"

SSu'ntit4

" r i c e

7

D

"

SSu'ntit4

" r i c e

DT

ST

"T

DT

"T

ST7

D

"

SSu'ntit4

" r i c e

7T

"T

ST

7T

"T

ST

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2.1.5 7u (4 'nd Dem'nd

R%M" decides to #et tou#& on dru#s. 7 ends ' +unc& o/ 'nd dri-es t&e &oods o//. 7u (4cur-e s&i/ts +'c 'rds.

ut (oo ot'( s enton dru#s incre'ses

%&'nces o/ 4our (' to +ein#sto(en incre'ses

7

D

S 81000 #s d'49

" r i c e

J G 0 #

7T

500

5

A00


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"rice %ei(in#s


D 7

"

R I % E

SU

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"rice F(oors


D 7

" R I % E

SU

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Mo&'ir M'dness

In t&e 2nd WW!

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"er-ersit4 o/ "rice 7u orts

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Mor'(e

)et t&e In-isi+(e :'nd o/ t&e M'r et do itsor 8

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3360 Unit 2.1 20146-I-18

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Transcript of 3360 Unit 2.1 20146-I-18