Topic Name Description
Course Introduction Page Course Syllabus
Page Course Terms of Use
1.1.1: Scarce Resources, Choices, and Opportunity Costs URL OpenStax College: "Principles of Microeconomics, Section 1.1: What Economics Is and Why It's Important"

Read "The Economic Problem" to learn about the basic problem of scarcity and the study of economics.

URL Principles of Microeconomics: "1.1: Defining Economics"

Read this section to encounter the three fundamental questions that economists face and to learn about opportunity costs. Attempt the problems presented in the "Try It" section and note how eventually every decision boils down to choosing between competing alternatives.

URL OpenStax College: "Principles of Microeconomics, 2.1: How Individuals Make Choices Based on Their Budget Constraint"

Read this section to understand opportunity costs.

Page Economic Problem: Scarce Resources

Watch this video.

Page Khan Academy: "Opportunity Cost"

Watch this lecture about opportunity costs.

Page Khan Academy: "Increasing Opportunity Cost"

Watch this video lecture about increasing opportunity costs.

Page Bjorn Lomborg's "Global Priorities"

This is an optional lecture and not a requirement of the course. In this unit, you learned that scarce resources underlie every economic decision that is made in society. You also learned that because of these scarce resources, there are trade-offs between alternate choices. In this guest lecture, Bjorn Lomborg advances this idea by discussing some pressing issues that need to be addressed. This talk should help you to identify the economic way of thinking, which will be elaborated upon in the next subunit.

1.1.2: Getting to Know Economics URL Principles of Microeconomics: "1.2: The Field of Economics"

Read this section and take a moment to read through the stated learning outcomes for this chapter, which you can find at the beginning of the section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of the section before checking the answers.

URL Principles of Microeconomics: "1.3: The Economists' Tool Kit"

Read this section and its learning outcomes, which should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of the section before checking the answers.

1.1.3: Review of Data Representation and Mathematics for Economics URL CK-12 Statistics: "Types of Data Representation"

Explore this collection of five resources on data representation. Devote time particularly to the "Graphic Displays of Data" resource, which contains a number of videos and example graphs. "Analyzing Data" contains a very helpful chart listing the pros and cons of using each type of graph. Conclude by attempting the "Types of Data Representation Practice".

Page Khan Academy: "Graph from Slope-Intercept Equation"

Watch this video, which provides a review of the basics of linear algebra you will need for this course, namely the ability to understand and graph straight lines, their slope, and their x- and y-intercepts. If you know this material well, don't dwell. Continue working your way through Unit 1.

1.2.1: The Production Possibility Frontier URL Principles of Microeconomics: "2.1 and 2.2"

Read Sections 2.1 and 2.2 . Take a moment to read through the stated learning outcomes for this chapter, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Also, attempt the "Try It" problems for each section before checking your answers.

The first section of the chapter will introduce you to the four factors of production that are present in the economy: labor, capital, natural resources, and entrepreneurship. Using any two factors of production, you can then learn to construct the production possibility frontier (PPF) in a two plane model. Note the economic implications of the downward slope and the bowed-out shape of the PPF curve. Also, note the meaning of producing on the curve versus inside the curve. Lastly, think about what it means to move along the curve.

Page Khan Academy: "Production Possibilities Frontier"

Watch this video about the production possibilities frontier.

Page Khan Academy: "Allocative Efficiency and Marginal Benefit"

Watch this video about allocative efficiency and marginal benefit.

Page Khan Academy: "Economic Growth through Investment"

Watch this video about economic growth through investment.

1.2.2: Comparative Advantage vs. Absolute Advantage Page Khan Academy: "Comparative Advantage Specialization and Gains from Trade"

Watch this video about comparative advantage specialization and gains from trade.

URL OpenStax College: "Principles of Microeconomics, 19.1: Absolute and Comparative Advantage"

Read this section, which covers the underlying meaning of the model of comparative advantage

Page Khan Academy: "Comparative Advantage and Absolute Advantage"

Watch this video about comparative advantage and absolute advantage.

1.2.3: Analyzing Advantage File Analyzing Advantage Data Tables and Graphs
Review this spreadsheet, which presents a hypothetical yet conceptually realistic illustration of the choices that countries face when exploring trade and productive specialization. After spending a few moments looking at this information, attempt the quiz that follows.
Page A Final Note on Absolute and Comparative Advantage

Read this review of the concepts of absolute advantage, comparative advantage, and opportunity costs.

1.3: The Circular-Flow Diagram URL OpenStax College: "Principles of Microeconomics, Chapter 4: Introduction to Labor and Financial Markets"

Read Chapter 4 to learn about the market system. Be sure to read the three sections following the introduction.

2.1: The Ceteris Paribus Assumption Page Boundless: "Ceteris Paribus"

Read this brief text to learn the formal definition of ceteris paribus. As a practice activity, identify a variable and list the multiple factors that may be influencing it. For example, say you are planning to request an increase in your salary. What are the factors that influence your salary? Do you think you can attribute the change in your salary to any one of these factors if all of the factors influencing it were simultaneously changing?

2.2: Demand URL Principles of Microeconomics: "3.1: Demand"

Read this section to learn about the theory of demand. Attempt the "Try It" problem. Use the data from the text to practice constructing and drawing the demand curve on your own, either on a paper or in Excel. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Page Khan Academy: "Law of Demand”

Watch this video about the law of demand.

Page Khan Academy: "Price of Related Products and Demand"

Watch this video about the price of related products and demand.

Page Khan Academy: "Changes in Income, Population, or Preferences"

Watch this video about changes in income, population, and preferences.

URL Khan Academy: "Normal and Inferior Goods"

Watch this video about normal and inferior goods.

Page Khan Academy: "Inferior Goods Clarification"

Watch this video about normal and inferior goods.

2.3: Supply URL Principles of Microeconomics: "3.2: Supply"

Read this section to learn about the theory of supply. Attempt the "Try It" problem. Use the data from the text to practice drawing the supply curve on your own, either on paper or in Excel. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Page Khan Academy: "Law of Supply"

Watch this video about the law of supply.

Page Khan Academy: "Factors Affecting Supply"

Watch this video about the factors affecting supply.

2.4: Market Equilibrium URL Principles of Microeconomics: "3.3: Demand, Supply, and Equilibrium"

Read this section to learn how demand and supply interact with one another to determine prices and quantities that may or may not be optimal. Attempt the "Try It" problem. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Page Khan Academy: "Market Equilibrium"

Watch this video about market equilibrium.

Page Khan Academy: "Changes in Market Equilibrium"

Watch this video about changes in market equilibrium.

URL Principles of Microeconomics: "4.1: Putting Demand and Supply to Work"

Read this section to learn about some applications of the demand and supply model. Attempt the "Try It" problem.

URL Boundless: "Introducing Supply and Demand"

Read each section of this chapter for a mathematical exposition of the demand and supply model. The chapter also covers price ceilings and price floor analysis as well as quantity regulations.

2.5: Manipulating the Market: Price Controls URL Principles of Microeconomics: "4.2: Government Intervention in Market Prices: Price Floors and Price Ceilings"

Read this section to learn why the government sometimes chooses to control prices. Attempt the "Try It" problem. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section.

URL Wolfram Demonstrations Project: "Price Controls"

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

Seeing how the market responds to various control mechanisms proves instructive, as the same action can have different consequences, depending upon the initial conditions of the system to which it is applied.

Once you have downloaded the software to your desktop, open the simulation and read the instructions. Manipulate the three variables and note how varying combinations of elasticity of demand, elasticity of supply, and the price control point ("set price") can affect total surplus. It is worth noting that two prices can result in the same quantity consumed. Notice how when the price is set above equilibrium, the amount of shortage is a function of both the elasticities of demand and supply. Similarly, with set prices below equilibrium, the amount of surplus is a function of the various elasticities of demand and supply.

You should take care to note the relationship between surplus quantities and reduced total surplus (consumer surplus plus producer surplus). Intervention prevents markets from operating freely and results in less consumption than at equilibrium and therefore results in an inefficient market.

2.6: Elasticity URL Scott A. Wolla's "Higher Gasoline Prices: Temporary or Time to Buy a Hybrid?"

Read this pamphlet and attempt the questions before viewing the answers. The answers are provided to you as a self-check.

URL OpenStax College: "Principles of Microeconomics, Chapter 5: Introduction to Elasticity"

Read this chapter to learn about the concept of elasticity. Be sure to read the sections following the introduction.

Page Massachusetts Institute of Technology: John Gruber's "Lecture 3: Elasticity"

Watch this lecture, focusing on both how elasticity is calculated as well as its potential implications for health care. Consider if you agree or disagree with the possible social and health implications of changing the overall elasticity of demand for national health systems.

Page Khan Academy: "Price Elasticity of Demand"

Watch this video about price elasticity of demand.

Page Khan Academy: "More on Elasticity of Demand"

Watch this video about elasticity of demand.

Page Khan Academy: "Constant Unit Elasticity"

Watch this video about constant unit elasticity.

Page Khan Academy: "Total Revenue and Elasticity"

Watch this video about total revenue and elasticity.

Page Khan Academy: "More on Total Revenue and Elasticity"

Watch this video about total revenue and elasticity.

Page Khan Academy: "Cross Elasticity of Demand"

Watch this video about cross elasticity of demand.

Page Khan Academy: "Elasticity of Supply"

Watch this video about elasticity of supply.

Page Khan Academy: "Elasticity and Strange Percent Changes"

Watch this video about elasticity and strange percent changes.

URL Wolfram Demonstrations Project: "Tax Incidence"

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

This guided simulation is meant to show you how a tax is shared between the producer and the buyer. The buyer pays their share of the tax as part of the transaction, and the seller sells less and receives less revenue. This lost revenue is one way that producers "pay" their share of the tax.

Once you have downloaded the software package to your desktop, open the demonstration and read all the instructions. Set the sliders so that the elasticities of both supply and demand equal 1.50 and the tax is 0.75. In this case, the tax incidence is shared equally between the producer and the buyer. In addition to each having 50% of the tax burden, they also share equally in the deadweight loss.

Now increase the slope of the demand curve (making demand less elastic). What happens to tax incidence? Whose share increases? Record the results in your notes, then decrease the slope of the demand curve. What happens to deadweight loss, and how is the tax incidence shared?

Finally, set demand at is max elasticity and supply at its minimum elasticity. What do you observe? Record the result and then set the sliders to the opposite: demand elasticity at a minimum and elastisticity of supply at a maximum.

In which markets would the producers or sellers be the most vocal about a tax increase? Under what circumstances would buyers be more vocal about a tax increase? Record your thoughts in your notes. (Hint: It has a lot to do with whether the market is for a necessity good or a luxury good.)

Unit 2 Review File Massachusetts Institute of Technology: Chia-Hui Chen's "Principles of Microeconomics: Lecture Notes D2"

Read these notes for a brief review of the theory covered in subunits 2.1–2.5.

File Massachusetts Institute of Technology: Chia-Hui Chen's "Principles of Microeconomics: Lecture Notes D3"

Read the first topic of these notes, "Price Elasticity of Supply", for a brief review of the theory covered in subunit 2.6.

File Massachusetts Institute of Technology: Chia-Hui Chen's "Principles of Microeconomics: Lecture Notes D4"

Read these notes for a brief review of the theory covered in subunit 2.6.

3.1: Maximizing in the Market Place URL Principles of Microeconomics: "6.1 and 6.2"

Read Section 6.1 to revisit the concept of marginal costs and benefits within the context of the consumer's (and the firm's) maximizing behavior. Proceed to read Section 6.2, which defines two new concepts: consumer surplus and producer surplus. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problem for each section.

Page Khan Academy: "Demand Curve as Marginal Benefit Curve"

Watch this video about the demand curve as a marginal benefit curve.

Page Khan Academy: "Consumer Surplus Introduction"

Watch this video about consumer surplus.

Page Khan Academy: "Total Consumer Surplus as Area"

Watch this video about total consumer surplus.

Page Khan Academy: "Producer Surplus"

Watch this video about producer surplus.

Page How Much to Produce? The Story of Marginal Revenue and Marginal Costs
Watch this video about how an apple farmer decides the optimal number of apples to pick. At the end of the video, consider whether or not the government should intervene. Think about which arguments you might make both supporting and disagreeing with the government acting in the market. In 3.2, we will cover specific ways the government might participate in the market.
URL Wolfram Demonstrations Project: "Consumer and Producer Surplus"

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

Surplus is a measure of the willingness of a producer or a consumer to participate in the marketplace. Total surplus is the sum of producer surplus and consumer surplus. The relative amounts of total surplus claimed by the consumer or the producer is determined by their respective elasticities of demand and supply. The following simulation shows how elasticities determine the sharing and magnitude of total surplus, consumer surplus, and producer surplus

Once you have downloaded the software to your desktop, open the simulation and read the instructions.

Change the respective elasticities by moving each slider. Note how the area of the blue triangle (consumer surplus) and the pink triangle (producer surplus) change proportionally to changes in the respective elasticities. Three positions for the sliders are of particular interest.

  1. Move the sliders until the blue and pink areas of surplus are approximately equal. Look at the sliders, what can you conclude about the elasticities of demand and supply and how total surplus is shared?
  2. Move the sliders to opposite ends of the slider bars. What conclusions can you draw about the relative differences in elasticity and the allocation of total surplus?
  3. Move both sliders as far as possible to one side and then move them both to the other side. What can you conclude about products where both consumer and producer/seller have very inelastic or on the other hand where both have very elastic?

Record your observations in your notes and discuss your conclusions with your peers in the discussion forum.

3.2: When Markets Fail Page Khan Academy: "Positive Externalities"

Watch this video about positive externalities.

URL Principles of Microeconomics: "6.3: Market Failure"

Read this section for a more detailed look at the topic of market failure. Attempt the "Try It" problem before checking your answer.

Page Khan Academy: "Rent Control and Deadweight Loss"

Watch this video about rent control and deadweight loss.

URL Khan Academy: "Minimum Wage and Price Floors"

Watch this video about minimum wage and price floors.

URL Khan Academy: "Taxation and Dead Weight Loss"

Watch this video about taxation and dead weight loss.

URL Khan Academy: "Percentage Tax on Hamburgers"

Watch this video about a percentage tax on hamburgers.

URL Khan Academy: "Taxes and Perfectly Inelastic Demand"

Watch this video about taxes and perfectly inelastic demand.

URL Khan Academy: "Taxes and Perfectly Elastic Demand"

Watch this video about taxes and perfectly elastic demand.

URL Khan Academy: "Negative Externalities"

Watch this video about negative externalities.

URL Khan Academy: "Taxes for Factoring in Negative Externalities"

Watch this video about taxes for factoring in negative externalities.

URL Khan Academy: "Tragedy of the Commons"

Watch this video about the tragedy of the commons.

3.3: Income Inequality URL Principles of Macroeconomics: "Chapter 19: Inequality, Poverty, and Discrimination"

Read this chapter for a more detailed look at the topic of income inequality. Attempt the "Try It" problems at the end of each section before checking your answers.

4.1: The Rational Consumer URL OpenStax College: "Principles of Microeconomics, Chapter 6: Introduction to Consumer Choices"

Read Chapter 6 for information on consumer choice, including utility, consumer equilibrium, consumer equilibrium demand, consumer surplus, budget constraint, and consumer equilibrium and indifference curves.

URL Principles of Microeconomics: "Chapter 7 Introduction, 7.1, and 7.2"

Read the Chapter 7 Introduction and Sections 7.1 and 7.2. Attempt the "Try It" problems at the end of each section. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Page Sheena Iyengar's "The Art of Choosing"

This is an optional lecture and not a requirement of the course. If you would like to, listen to this guest lecture in which the speaker talks about her ground-breaking research on how people make choices and explains attitudes towards their decisions.

Page Khan Academy: "Marginal Utility"

Watch this video about marginal utility.

Page Khan Academy: "Budget Line"

Watch this video about the budget line.

Page Khan Academy: "Deriving Demand Curve from Tweaking Marginal Utility per Dollar"

Watch this video about deriving the demand curve from tweaking marginal utility per dollar.

URL Wolfram Demonstrations Project: "Constrained Optimization: Cobb-Douglas Utility and Interior Solutions Using a Lagrangian"

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

This simulation presents an excellent illustration of how indifference curves and budget lines interact to produce optimal consumption (highest combined utility) of goods, given a set budget.

Our first task is to avoid letting the title of the simulation and the mathematical expressions fluster us! Once you have downloaded the software to your desktop, open the simulation and read the instructions.

A Lagrangian is an optimal point. Consumer optimization is all about finding the optimal point on the highest indifference curve (the red curve convex to the origin). An indifference curve shows different quantities of much of each of two goods (X1 and X2) a person can consume and end up with equivalent utility. You will work with an example of a college student who is trying to optimize his utility derived from eating pizza and drinking beer in the following quiz.

A vital constraint to consider in optimizing utility is budget. The slope of the budget line is controlled by the relative prices of both products. In the simulation, change the sliders that control the relative price of each good (X1 and X2) and note how the budget line changes. The cheaper either product is the more of that product can be bought, but that does not necessarily mean utility will respond proportionately. The income slider moves the budget line inward or outward; with more income we can buy proportionately more of both products. Notice how the budget line changes shape or moves up or down different indifference curves are tangent to the budget line. The indifference curve doesn't move, but we rather encounter different curves to which the budget line becomes tangent.

The "preference strength" for X1determines the shape of the indifference curve and consequently where it becomes tangent to the budget line. Experiment with varying preferences and recall that preference is another way of stating tastes. As preferences change, higher or lower indifferences curves intersect the budget line.

Start your exploration by setting all sliders to the middle of their respective bars. Then, try the following:

  • Examine the consequence of an overall price decline in both products. (Hint: Move both X sliders in turn, then at the same time.)
  • Examine the consequences of an overall price increase in both products in turn and at the same time.
  • Reset to the midpoints and explore income increases and decreases. How do these compare with price increases?
  • Reset to the midpoints and explore how changing preferences affect quantities purchased.
  • How could you represent luxuries and necessities with this demonstration?

Record your observations in your notes and consider sharing your conclusions on the discussion forum.

4.2: Consumer Preferences and Consumer Choice URL Principles of Microeconomics: "7.3: Indifference Curve Analysis: An Alternative Approach to Understanding Consumer Choice"

Read this section to learn about indifference analysis. Attempt the "Try It" problems at the end of the section before checking your answers.

Page Massachusetts Institute of Technology: Jon Gruber's "Preference and Utility"

Watch this lecture for an explanation of consumer theory, and especially mathematical representations of consumer preferences.

Page Massachusetts Institute of Technology: Jon Gruber's "Labor Supply" and "Child Labor"

Watch these two lectures for an explanation of labor analysis.

Page Khan Academy: "Equalizing Marginal Utility per Dollar Spent"

Watch this video about equalizing marginal utility per dollar spent.

Page Khan Academy: "Types of Indifference Curves"

Watch this video about the types of indifference curves.

Page Khan Academy: "First Degree Price Discrimination"

Watch this video about first degree price discrimination.

URL Wolfram Demonstrations Project: "Changes in the Budget Line"

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

It is difficult to map indifference curves because preferences can change from moment to moment, but budget lines are real and tangible. This simulation shows how price changes and income changes affect a budget line. Of course, we are often making purchasing decisions based on more than two goods at a time, but modelling simpler considerations is the first step to modelling more complex decisions.

Once you have downloaded the software to your desktop, open the simulation and click the "reset parameters" box. The two goods in this model are labeled A and B. At the initial settings, the person to whom this budget line belongs can purchase a maximum of four units of good B at $6 per unit. Alternately, the this person could chose to buy only good A., purchasing 6 units at a price of $4 each. Notice that, in either case the total is $24; $24 is the budget this person has to spend on goods A and B. All points on the red line is a possible combination of goods with the $24 budget. For example, purchasing 2 units of good B at $6 each and 3 units of good A at $4 each fits within the budget.

Explore the simulation. Move the income slider to, say, $36. The dotted line that appears is the new budget line. Notice how this new budget line is parallel to the previous budget line at the lower income. Does that make sense? It ought to! The slope of the budget line is determined by the respective prices of goods A and B, not income!

Next, reset the parameters and examine what happens when goods A and B are different prices. Raise and lower both prices separately.

Now, lower both prices. Change the price of good A to $2.66 and the price of good B to $4. Doesn't the dotted line look like the previous budget line you had for $36? Why might this be? In effect, with general deflation we experience a general wage increase, as we will be able to buy more for the same total price. Yes, the lowering of prices is conceptually equivalent to an increase in income.

Try the opposite last. Reset the values, lower the budget line, and find a level of price for each good such that the budget line approximates the previous one. Take a few more moments to experiment with this simulation.

Page Khan Academy: "Optimal Point on Budget Line"

Watch this video about the optimal point on a budget line. The optimal consumer choice in the indifference curve analysis is determined by the tangency condition between the marginal rate of transformation (MRT) and the marginal rate of substitution (MRS).

Page Boundless: "Defining Price Elasticity of Demand"

Read this section about price elasticity.

Unit 4 Review Folder Massachusetts Institute of Technology: Chia-Hui Chen's "Principles of Microeconomics Lecture Notes"

You may go through these lecture notes if you wish to review topics covered in this unit in a more mathematical way.

5.1: The Short Run URL Boundless: "Production"

Read this chapter on production. It will provide you with mathematical analysis of the topics in unit 5.

URL Principles of Microeconomics: "8.1: Production Choices and Costs: The Short Run"

Read this section to learn about the behavior of the producer in the short run. Attempt the "Try It" problems at the end of the section before checking your answers. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter.

Page Understanding Normal Profit

Watch this video about how a coffee shop owner decides whether to keep is shop open or take another job, At the end of the video, consider the role of opportunity costs and how they affect business decisions. Think about times you've had to make choices and how opportunity costs affected those decisions.

Page Khan Academy: "A Firm's Marginal Product Revenue Curve"

Watch this video about a firm's marginal product revenue curve.

Page Khan Academy: "Economic Profit vs. Accounting Profit"

Watch this video about economic profit versus accounting profit.

Page Khan Academy: "Depreciation and Opportunity Cost of Capital"

Watch this video about depreciation and the opportunity cost of capital.

Page Understanding the Short-Run Shutdown

Watch this video about how a baker decides whether to keep her bakery open or to close. At the end of the video, consider the role of costs and how they affect business decisions. Think about examples of businesses which have chosen to shut down.

Page Khan Academy: "Fixed, Variable, and Marginal Cost"

Watch this video about fixed, variable, and marginal cost.

Page Khan Academy: "Visualizing Average Costs and Marginal Costs as Slope"

Watch this video about visualizing average costs and marginal costs as a slope.

Page Khan Academy: "Marginal Cost and Average Total Cost"

Watch this video about marginal cost and average total cost.

Page Khan Academy: "Marginal Revenue and Marginal Cost"

Watch this video about marginal revenue and marginal cost.

Page Khan Academy: "Marginal Revenue below Average Total Cost"

Watch this video about marginal revenue below average total cost.

URL Wolfram Demonstrations Project: "Short-Run Cost Curves"

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

This simulation shows how Total and Marginal Cost curves interrelate and lead a firm to its profit maximization production point.

Once you have downloaded the software to your desktop, open the simulation and read the instructions. Unlike previous simulations, this one has two panels to analyze: The left panel shows the Total Cost (TC) curve, and the right panel shows the Marginal Cost (MC) curve. 

The lettered sliders correspond to the following variables:

a = the slope of the TC curve

= the slope of the MC curve = the rate of change of the slope of TC

c = Average Variable Cost

d = Fixed Costs

Experiment with changing these variables and note how changes affect the break even point and the shutdown point.

These curves are the backbone of a firm's production decisions. All that needs to be added is a Total Revenue curve. As you know, if a firm takes its selling price from the market, its Total Revenue curve (left panel) is a straight line originating at the origin with a slope of 1. The Marginal Revenue curve (right panel) is a horizontal line running from the y-axis, originating at Price. Recall that, with a price taker, P = MR = AR. From this simulation, you can examine various points where MC would equal MR and determine if the firm would be profitable.

Set all sliders to their mid position (= 77 and = 5400) and imagine a Marginal Revenue of $90. What can you tell from the graphs?

You would see that the firm is profitable and produces about 625 units. In other words, MC and MR intersect at the point (625, 90) because that is where MC = MR. Looking now at the left panel, you can see that to make 625 units, the total cost is about $50,000 and total revenue ($90 times 625 units) is $56,250 – a tidy economic profit!

Explore the model. Set the variables at different rates, set the market price, and see how that affects the cost curves and profits.

Any rational firm will choose to produce only at the point of MC = MR.

5.2: The Long Run URL Principles of Microeconomics: "8.2: Production Choices and Costs: The Long Run"

Read this section to learn about the behavior of the producer in the long run. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of the section before checking your answers.

Page Khan Academy: "Long-Term Supply Curve and Economic Profit"

Watch this video about the long-term supply curve and economic profit.

Unit 5 Review Folder Massachusetts Institute of Technology: Chai-Hui Chen's "Principles of Microeconomics Lecture Notes"

Study these lecture notes to review producer theory and to take a look at how production functions and cost functions can be derived mathematically.

6.1: Perfect Competition URL Principles of Microeconomics: "Chapter 9: Competitive Markets for Goods and Services"

Read this chapter for an explanation of the model of perfect competition, which is crucial to your understanding of the more complicated and realistic models that will be studied next. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of each section.

Page John Petroff's Microeconomics: "Chapter 4: Perfect Competition"

Read this chapter.

URL OpenStax College: "Microeconomics, Chapter 8: Perfect Competition"

Read Chapter 8, which provides an overview of the Perfect Competition model and a guide to the elements you need to know in order to understand the model. Be sure to read the sections following the introduction.

Page Khan Academy: "Perfect Competition"

Watch this video about perfect competition.

6.2: Non-competitive Markets: Monopoly URL Principles of Microeconomics: "Chapter 10: Monopoly"

Read this chapter to learn the characteristics, workings, and effects of the monopoly model. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of each section before checking your answers.

Page Massachusetts Institute of Technology: Jon Gruber's "Monopoly I"

Watch this lecture for an explanation of the monopoly model.

URL OpenStax College: "Microeconomics, Chapter 9: Monopoly"

Read Chapter 9, which discusses monopolies. Be sure to read the sections that follow the introduction.

Page Khan Academy: "Monopoly Basics"

Watch this video about monopoly basics.

Page Khan Academy: "Review of Revenue and Cost Graphs for a Monopoly"

Watch this video about revenue and cost graphs for a monopoly.

Page Khan Academy: "Monopolist Optimizing Price (Part 1): Total Revenue"

Watch this video about revenue and cost graphs for a monopoly.

Page Khan Academy: "Monopolist Optimizing Price (Part 2): Marginal Revenue"

Watch this video about monopolist optimizing price and marginal revenue.

Page Khan Academy: "Monopolist Optimizing Price (Part 3): Dead Weight Loss"

Watch this video about monopolist optimizing price and dead weight loss.

Page Boundless: "Price Discrimination"

Read this section to see how monopolists can potentially use their unique place in an industry to charge different prices to different consumers – in other words, how they indulge in price discrimination.

6.3: Imperfect Competition URL Principles of Microeconomics: "11.1: Monopolistic Competition: Competition among Many"

Read this section to learn about monopolistic competition. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problem before checking your answer.

URL Boundless: "Economics, Chapter 12: Monopolistic Competition"

Read this chapter to learn about monopolistic competition.

URL Khan Academy: "Oligopolies and Monopolistic Competition"

Watch this video about oligopolies and monopolistic competition.

URL Khan Academy: "Monopolistic Competition and Economic Profit"

Watch this video about monopolistic competition and economic profit.

URL Principles of Microeconomics: "11.2: Oligopoly: Competition among Few"

Read this section, skipping the "Measuring Concentration in Oligopoly" section and proceeding straight to "The Collusion Model". Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of the section before checking your answers.

URL Khan Academy: "Oligopolies, Duopolies, Collusion, and Cartels"

Watch this video about oligopolies, duopolies, collusion, and cartels.

Page Massachusetts Institute of Technology: Johnathan Gruber's "Oligopoly"

Watch this lecture for an explanation of the oligopoly model.

URL Khan Academy: "Game Theory of Cheating Firms"

Watch this video about game theory of cheating firms.

URL Khan Academy: "More on Nash Equilibrium"

Watch this video about the Nash Equilibrium.

URL Khan Academy: "Why Parties to Cartels Cheat"

Watch this video about why parties to cartels cheat.

URL Khan Academy: "Prisoners' Dilemma and Nash Equilibrium"

Watch this video about the Prisoners' Dilemma and the Nash Equilibrium.

Unit 6 Review File Massachusetts Institute of Technology: Chia-Hui Chen's "Principles of Microeconomics, Lecture Notes D22–D29"

Read these lecture notes to review this unit.

7.1: Overview of Resource Markets URL Boundless: "Capital and Natural Resource Markets"

Read the 6 sections of this chapter on resource markets, including topics such as demand, supply, and price ceilings and floors.

URL Khan Academy: "Adding Demand Curves"

Watch this video about adding demand curves.

7.2: The Labor Market URL Principles of Microeconomics: "Chapter 12: Wages and Employment in Perfect Competition"

Study this chapter to learn about labor markets, including topics on wage differentials, discrimination, and unions.

URL Khan Academy: "How Many People to Hire Given the MPR Curve"

Watch this video about how many people to hire given the marginal product revenue curve.

7.3: Financial Markets Page Boundless: "Types of Financial Markets"

Read this section to learn about capital and financial markets, including topics like capital, technological change, and financial capital.

7.4: Land and the Market for Natural Resources Page John Petroff's Microeconomics: "Chapter 8: Economic Resources"

Study this brief chapter on economic resources which provide examples of the concepts discussed in this subunit.

Study Guides Page Unit 1 Study Guide: Introduction to Economics: What Is It?
Page Unit 2 Study Guide: Supply and Demand
Page Unit 3 Study Guide: Markets and Individual Maximizing Behavior
Page Unit 4 Study Guide: The Consumer
Page Unit 5 Study Guide: The Producer
Page Unit 6 Study Guide: Market Structure: Competitive and Non-competitive Markets
Page Unit 7 Study Guide: Resource Markets
Course Feedback Survey URL Course Feedback Survey