CHAPTER 1
INTRODUCTION TO MICROECONOMICS
Content
Microeconomics
Basic questions in economics
Economic choice
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Chapter 1: Introduction
I. Microeconomics
1. The economy
Household
Input market Government Output market
Firm
I. Microeconomics
1. The economy
- There are at least 3 members in any economy, which
interacting with each other in a certain regime.
Interacting regimes:
- planning economy (1)
- market economy (2)
- mixed economy (3)
1 3 2
Cuba US, UK,
Hong
Japan...
Kong
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I. Microeconomics
2. Some definitions
Scarcity: When the needs are greater than the
supplying ability
Commodities: Tools to satisfy people’s needs
Resources: Inputs used to produce commodities to
satisfy people’s needs, including:
+ Labour (L)
+ Materials (M)
+ Capital (K)
I. Microeconomics
3. Microeconomics and macroeconomics
Economics: study how society allocates scarce
resources for competitive goals
Microeconomics:study the behavior of each
member in the economy
Macroeconomics: study the economy as a whole
Microeconomics Macroeconomics Econometric
ECONOMICS
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II. Basic economic issues
3 questions
WHAT?
HOW?
FOR WHOM?
III. Economic choice
1. Choice’s principles
- Need to choose because of scarce resources. If
resource is already spent on A, it can not be spent on B
- Many ways to spend resources → easy to choose
2. Choice’s target
- Household: Optimize benefit
- Firm: Optimize profit
- Government: Optimize social welfare
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III. Economic choice
3. Choosing tool
- Opportunity cost (OC): The value of the best missed
chance when making a choice
- Marginal thinking
+ Marginal cost (MC): The change in total cost resulting
from a change from quantity
∆TC
MC = = TC '( Q )
∆Q
+ Marginal benefit (MB): The change in total benefit
resulting from a change from quantity
∆TB
MB = = TB '( Q )
∆Q
