Economics may have a reputation as a dismal science, but in fact it addresses some of the most fundamental problems we face: How to make the best decision given that resources are limited. You can use the tools of microeconomics to decide how best to spend your income; how best to divide your time among leisure activities; or how many people to hire in the business you run. Life is full of choices. Microeconomics can help you decide how to make them.
Economics can’t help you make a selection from this box of chocolates, but can be a vital tool in other decision-making situations. Image courtesy of ninanord on Flickr.
Keywords: Microeconomics; prices; normative economics; positive economics; microeconomic applications.
Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:
This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.
Which of the following is an accurate description of the primary theme of microeconomics?
All three of these answers encapsulate the main theme of microeconomics in a different way: constrained optimization problems allow us to analyze how individuals and firms can make themselves as well off as possible given scarcity. This entails analyzing the trade-offs between investing in different activities.
What is a model?
Models do not provide a complete description of a particular economic phenomenon; instead, they make simplifying assumptions that render the model more tractable to work with. While empirical studies may make use of models, they are not identical.
What is the key assumption in microeconomics?
Though it is accurate to say that firms maximize profits, it is incomplete. Individuals dont solely maximize income, rather utility, and sales and profits for a firm are not identical.
What is the distinction between empirical and theoretical economics?
Both theoretical and empirical economics can analyze either individuals or firms, and either short-term or long-term phenomena.
Which of the following statements represents normative, rather than positive analysis?
This is a normative statement that is based on an assumption of equity (we want rich and poor to have equal access to treatment.) The others answers are positive statements that are based on facts about the supply and demand of goods in different markets.