1. 1.3 Real versus Nominal Prices
1.1. ● nominal price
1.1.1. Absolute price of a good, unadjusted for inflation.
1.2. ● real price
1.2.1. Price of a good relative to an aggregate measure of prices; price adjusted for inflation.
1.3. ● Consumer Price Index
1.3.1. Measure of the aggregate price level.
1.4. ● Producer Price Index
1.4.1. Measure of the aggregate price level for intermediate products and wholesale goods.
1.5. Example 1.3
1.5.1. Table 1
1.5.2. Table 2
1.5.3. Table 3
1.6. Example 1.4
2. 1.4 Why Study Microeconomics?
2.1. Corporate Decision Making: The Toyota Prius
2.1.1. The design and efficient production of the Prius involved not only some impressive engineering, but a lot of economics as well.
2.1.1.1. First, Toyota had to think carefully about how the public would react to the design and performance of this new product.
2.1.1.2. Next, Toyota had to be concerned with the cost of manufacturing these cars.
2.1.1.3. Finally, Toyota had to think about its relationship to the government and the effects of regulatory policies.
2.2. Public Policy Design: Fuel Efficiency Standards for the Twenty-First Century
2.2.1. A number of important decisions have to be made when designing a fuel efficiency program, and most of those decisions involve economics.
2.2.2. A number of important decisions have to be made when designing a fuel efficiency program, and most of those decisions involve economics.
2.2.2.1. First, the government must evaluate the monetary impact of the program on consumers.
2.2.2.2. Before imposing CAFE standards, it is important to estimate the likely impact those standards will have on the cost of producing cars and light truck.
2.2.2.3. Before imposing CAFE standards, it is important to estimate the likely impact those standards will have on the cost of producing cars and light truck.
2.2.2.4. The government must also ask why problems related to oil consumption are not solved by our market-oriented economy.
2.3. Individuals
2.3.1. Illustration 1
2.3.2. Illustration 2
2.3.3. Illustration 3
2.3.4. Illustration 4
2.3.4.1. Illustration 4.1
2.3.4.2. Illustration 4.2
3. 1.1 The Themes of Microeconomics
3.1. Branches of economics
3.1.1. microeconomics
3.1.1.1. Branch of economics that deals with the behavior of individual economic units—consumers, firms, workers, and investors—as well as the markets that these units comprise.
3.1.2. macroeconomics
3.1.2.1. Branch of economics that deals with aggregate economic variables, such as the level and growth rate of national output, interest rates, unemployment, and inflation.
3.2. Trade-Offs
3.2.1. constrained optimization
3.2.1.1. CONSUMERS
3.2.1.1.1. Consumers have limited incomes
3.2.1.1.2. Spend on a wide variety of goods and services, or saved for the future.
3.2.1.2. WORKERS
3.2.1.2.1. Workers also face constraints and make trade-offs.
3.2.1.2.2. First, people must decide whether and when to enter the workforce.
3.2.1.2.3. Second, workers face trade-offs in their choice of employment
3.2.1.2.4. Finally, workers must sometimes decide how many hours per week they wish to work, thereby trading off labor for leisure.
3.2.1.3. FIRMS
3.2.1.3.1. Firms also face limits in terms of the kinds of products that they can produce, and the resources available to produce them.
3.3. Opportunity cost
3.4. Prices and Markets
3.4.1. Microeconomics describes how prices are determined.
3.4.1.1. In a centrally planned economy
3.4.1.1.1. prices are set by the government
3.4.1.2. In a market economy
3.4.1.2.1. prices are determined by the interactions of consumers, workers, and firms. These interactions occur in markets
3.4.2. Markets
3.4.2.1. collections of buyers and sellers that together determine the price of a good.
3.5. Positive versus Normative Analysis
3.5.1. ● positive analysis
3.5.1.1. Analysis describing relationships of cause and effect.
3.5.2. ● normative analysis
3.5.2.1. Analysis examining questions of what ought to be.
3.6. Models
3.6.1. Example 1
4. 1.2 What Is a Market?
4.1. Definitions
4.1.1. ● market
4.1.1.1. Collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products.
4.1.2. ● market definition
4.1.2.1. Determination of the buyers, sellers, and range of products that should be included in a particular market.
4.1.3. ● arbitrage
4.1.3.1. Practice of buying at a low price at one location and selling at a higher price in another.
4.2. Competitive versus Noncompetitive Markets
4.2.1. perfectly competitive market
4.2.1.1. Market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.
4.2.1.2. Many other markets are competitive enough to be treated as if they were perfectly competitive.
4.2.1.3. Other markets containing a small number of producers may still be treated as competitive for purposes of analysis.
4.2.1.4. Finally, some markets contain many producers but are noncompetitive; that is, individual firms can jointly affect the price.
4.3. Market Price
4.3.1. ● market price
4.3.1.1. Price prevailing in a competitive market.
4.3.1.1.1. In markets that are not perfectly competitive
4.3.1.1.2. The market prices of most goods will fluctuate over time, and for many goods the fluctuations can be rapid. This is particularly true for goods sold in competitive markets.
4.4. Market Definition—The Extent of a Market
4.4.1. ● extent of a market
4.4.1.1. Boundaries of a market, both geographical and in terms of range of products produced and sold within it.
4.4.1.1.1. For some goods, it makes sense to talk about a market only in terms of very restrictive geographic boundaries.
4.4.1.1.2. We must also think carefully about the range of products to include in a market.
4.4.2. Market definition is important for two reasons:
4.4.2.1. A company must understand who its actual and potential competitors are for the various products that it sells or might sell in the future.
4.4.2.2. Market definition can be important for public policy decisions.
4.4.3. Examples
4.4.3.1. Example 1.1
4.4.3.2. Example 1.2