Unit 1: Introduction to Economics
The study of microeconomics focuses on exchanges among consumers and firms that are in the market to purchase goods and services. In contrast, macroeconomics focuses on exchanges that take place across all of the markets within a country. We take the interrelated actions of consumers, businesses, government agencies, financial intermediaries, and global trading partners into account, as they exchange resources, goods, and services, and facilitate currency and quantity flows. Microeconomics studies how to achieve profit maximization, while macroeconomics studies how to achieve economic stability and growth on a national level.
Completing this unit should take you approximately 12 hours.
Upon successful completion of this unit, you will be able to:
- analyze resource allocation based on the principles of scarcity, opportunity cost, and making decisions at the margin;
- distinguish microeconomics from macroeconomics;
- understand models and other tools used to carry out economic analysis;
- apply the Production Possibilities Curve to identify production combinations that are efficient, inefficient, and unattainable;
- explain the classification of economic systems, the role of government in different economic systems, and the strengths and weaknesses of different systems
- define demand and supply and market equilibrium;
- explain how changes in the demand and supply determinants affect the demand and supply curves and alter the equilibrium prices and quantities
- describe the circular flow model, identifying linkages between the markets for goods and resources as well as the exchanges between businesses and households; and
- analyze price controls and the way they create product shortages or surpluses in the markets.
- Keep the following two comprehensive study guides handy throughout your macroeconomics course study. They provide brief oulines for many of the major macroeconomics topics studied in this course and can help prepare you for your final economics exams.
1.1: The Economic Way of Thinking
- Read this chapter to learn about the economic way of thinking and the principles of scarcity and opportunity cost. Be sure to click through each of the sections. Note how individuals and businesses make everyday decisions at the margin. Learn about the differences between macroeconomics and microeconomics.
- Watch these two videos to learn about resources, scarcity and how we make choices when resources are scarce. As we know, satisfying unlimited wants is impossible. Finding ways to use our scarce resources in ways that optimize society's well-being is one of the most important tasks of the science of economics.
Read this introduction to Macroeconomics, which provides a brief overview of the overall science of economics. Pay attention to the key the differences between microeconomics and macroeconomics.
- The following two videos show you the economist's toolkit and explain how economists test hypotheses, develop economic theories, and use models in their analysis.
1.2: Choices in Production and the Production Possibilities Curve
- Read this chapter to learn about the factors of production and the way they are combined in production. Use the production possibilities curve to represent the alternative combinations of goods and services that an economy can produce. Make sure to understand how the curve represents efficient, inefficient, and unattainable levels of production. Pay attention to how economic growth can be represented by shifts in the curve. Also in this chapter, learn about how economic systems compare.
- Watch these two videos to learn how a production possibilities curve is constructed. Pay close attention to the way changes in resources affect the PPC curve. As you will see, some combinations of products may be unattainable, given the limited existing resources, whereas other combinations of products may be inefficient as they leave some unused resources. The PPC curve helps us find levels of production that utilize all of the available resources in the economy.
1.3: Demand, Supply, and Market Equilibrium
- Read this chapter and attempt the "Try It" exercises. Also, complete the concept problems and the numerical problems at the end of the chapter. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve. Make sure to carefully study the difference between demand and quantity demanded (and the difference between supply and quantity supplied).
- Watch these three videos to learn about Demand, the Law of Demand, and the variables that shift the Demand curve. Make sure to understand the difference between Demand and Quantity Demanded. Knowing this difference will help you determine if a change in a specific variable causes a movement along the Demand curve or a shift of the curve.
- Watch these two videos to learn about Supply, the Law of Supply, and the variables that shift the Supply curve. Note that, similarly to the discussion of the difference between Demand and quantity demanded, here we have to distinguish between Supply and quantity supplied. As you will see, a change in quantity supplied causes a movement along the supply curve, whereas a change Supply is a shift of the entire curve.
- Watch this video to put together Demand and Supply on the same graph and determine equilibrium quantity and price. Learn about the ways in which changes on the demand and/or supply side of the market affect the equilibrium outcome.
This exercise will help you understand demand, supply, and equilibrium; identify the determinants of demand and supply; and describe how changes in demand and supply lead to changes in a market's equilibrium price and quantity.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.
1.4: The Circular Flow of Income and Expenditures
- Read this section on the Circular Flow of Economic Activity. Learn about the how the circular flow model provides a link between the demand and supply in the product and factor markets.
- Watch this lecture about the circular flow of income and expenditures in a closed economy. Note that goods and services are exchanged in product markets and factors of production are exchanged in factor markets.
- Receive a grade
Take this quiz to check your understanding of the circular flow model. You should understand the kinds of actors in an economy, and how money can transfer among them.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.
1.5: Applications of Demand and Supply
- Read this chapter and attempt the "Try It" exercises. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve after completing these chapters. This will help you prepare for similar types of analyses in the units ahead.
- Watch this video to learn about the way in which government price controls (price floors and price ceilings) can sometimes alter the market outcome. Note if price controls are set at levels that make them ineffective. Some notable examples of real world price controls are also discussed.