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Welcome to

Microeconomics (ECON15269G)
Text:
Canadian Microeconomics:
Problems and Policies (10
th
edition)
Brian Lyons, Pearson Prentice Hall
Text includes a Study Guide with
review questions and answers
at the end of each chapter.
Instructor:
Office:
Phone:
E-mail:
Organization of the Course
Classes:
How you learn it: Cover main points
and highlights

Page-referenced to:

Textbook:
Adds details re:
the objectives
What you need to know : Learning 1. Recall
Outcomes 2. Understanding
3. Application
How you check
your progress:
How you are
evaluated: See next slide.
In the text:
Review Questions
Critical Thinking Questions
after each chapter
(with answers)
On SLATE:
Self-Check Questions
after each chapter
(with answers & feedback)
What you need
to do:
A To Do list for
each chapter,
on SLATE
Quiz/Test Coverage Marks
Quiz #1 Chapters 1-3 10
Quiz #2 Chapters 4-5 10
Test #1 Chapters 1-6 30
Quiz #3 Chapters 7 and 9 10
Quiz #4 Chapters 10-11 10
Test #2 Chapters 7 and 9-12 30
Total 100
EVALUATION SYSTEM
A typical To Do list for a chapter
To Do List for Chapter 1
Done
Learning Activities:
1. Read the Overview for Chapter 1.
2. Read the Learning Outcomes for Chapter 1.
3. Read Chapter 1 in the text.
4. Review the PowerPoint slideshow for Chapter 1.
Practice Exercises:
1. Do the self-check questions on SLATE.
2. Do the Review Questions in the text (pages 16-18); check your
answers (page 345).
3. Do Critical Thinking questions #1-5 in the text (pp.18-19); check
your answers (p.345).

QUESTIONS?
See the Frequently Asked Questions File
in the Introduction and Orientation section.
Chapter 1
Introduction
Today, we enjoy a high
standard of living
whereas our great-
grandparents lived without the things we have today
-- AND worked much longer hours!
What has made our standard of living so much higher?
High consumption of goods & services per person
is made possible by
high production of goods & services per person.
PRODUCTIVITY
(output per worker per hour)
The key is
The Basic Economic Problem of Scarcity
Productive Inputs
Labour
Capital
equipment
Natural
resources
Economic
System
Goods & services
to satisfy
peoples wants
The scarcity
+ problem
Pages 4-6

In limited supply
q
Seemingly
unlimited
Output
Opportunity Cost
Deserted Island Scenario:
2 products, 8 workers.
Each worker can produce
1 unit of food per day or
1 unit of fuel per day.
Food:
4 workers
4 units/day
Fuel:
4 workers
4 units/day
Want 25%
more food:
Food:
5 workers
5 units/day
Basic problem of scarcity:
We lack the resources to
produce everything that we want.

If we produce more
of one good,
Fuel:
3 workers
3 units/day
What is the cost of the extra unit of food per day?
One unit of fuel per day

the opportunity cost of the unit
of food:
What else could have been produced with
the same resources (& consumed).
Page 6-10
we must accept
less of another.
Suppose that in an island mini-economy there were:
2 people catching a total of 6 fish per day and
2 people picking a total of 8 kilograms of fruit per day
To produce 3 more fish/day
transfer 1 worker from fruit production,
where he/she could have produced 4 kg of fruit/day.
If they decided that they wanted
3 more fish each day, what
would be the opportunity cost of the
additional 3 fish?
4 kilograms of fruit per day
Product A
10 20 30 40 Product B
40
30
20
10
0

A Production-Possibilities Curve
40 of A; 0 of B
40 of B; 0 of A
You can have more of B,
IF
you are prepared to
accept less of A
(the opportunity cost)
Page 7-10
The opportunity cost of a $9,000
automobile that you are
considering buying is:
(a) $9,000.
(b) $200 per month payment (principal and interest)
on the loan that was needed to buy the car.
(c) not a serious consideration in the decision
whether or not to buy the car.
(d) the boat and fishing vacation
that you could have bought
instead of the car.
(e) zero, if you can borrow
the $9,000.
Created by Brian Lyons 2008
What is the opportunity cost of
the government spending
$2 billion more on health care?
$2 billion less available for:

education
the environment
pensions
day care
national defence
etc.
or.?
Consumer goods
(beer & pizza)
via higher taxes
What is the opportunity cost
of your attending college?
Tuition $
Other college fees
$ for books, etc.
PLUS Foregone income
What you could have
bought with:
How could the islanders get 5 units of food without having to
accept a reduction in fuel production from 4 units to 3 units?
The 4 food workers are producing 4
units of food/day
(1.00 units of food/worker/day)
How can we overcome the scarcity problem?
i.e. If production per food worker increased
from 1.00 units/day to 1.25 (an increase of 25%),
they could have more food without a loss of fuel.
The key is increasing production per worker,
or productivity.
IF their production increased to 5
units of food/day
(1.25 units of food/worker/day)
Productivity and the Standard of Living
IF the productivity of food workers increased by 25%
5 units of food are available each day instead of 4
IF the productivity of fuel workers increased by 25%
5 units of fuel are available each day instead of 4
25% more
25% more
Higher production per worker
is the basis for
higher consumption per person
Higher productivity
is the key to a
higher standard of living
and
If the productivity of workers in general increases,
consumption per person (the standard of living) can increase.
Page 5
A factory employs 15 workers who work 8 hours per day.
It produces 600 units of product per day.
What is the productivity of the factorys workers?

______________
120 worker-hours
(15 workers X 8 hours)
5 units per worker per hour is productivity, which is
a measure of efficiency rather than total output.
Measuring Productivity
The proper definition of productivity is:
output per worker per hour
600 units
600 units per day is the total production of the factory.
= 5 units per worker per hour
Productivity and Production Costs
In the previous example, suppose each worker is
paid $15 per hour and produces 5 units in an hour.
What is the labour cost per unit produced?
$15
5 units
Suppose that worker productivity increases
from 5 to 6 units per hour.
What happens to labour cost per unit?
It falls to $15
6
Labour efficiency has improved, whether it is measured by
higher output per worker per hour or
lower labour cost per unit.
= $3.00 per unit
= $2.50 per unit.
In the long run, increases in productivity that is, in
output per worker per hour are the only way for a country
to raise its living standards.
But how can we increase productivity?
Various factors affect productivity, but one key is
capital equipment*:
Capital
Equipment*
Page 5, 12
Higher output
per worker/hour
(productivity)
Higher
standard
of living
* Tools, machinery, equipment, computers, etc.
0
50
100
150
200
250
300
350
400
450
500
0 2 4 6 8
1
0
1
2
1
4
1
6
1
8
2
0
2
2
2
4
2
6
2
8
3
0
3
2
3
4
3
6
3
8
4
0
4
2
4
4
4
6
4
8
5
0
5
2
5
4
Long-Term Productivity Growth
If productivity grows at 1.3% /year, it takes 54 years to double.
If productivity grows at 3.0% /year, it doubles in only 24 years.
Canadas productivity grew by 3% per year before
1977, but only 1.3% per year since then.
3% growth rate
1.3% growth rate
The 72 Formula
If a variable is increasing at a compound rate,
the number of years it will take to double can be estimated as
72
Rate of increase (%)
Eg If productivity grows 3%
per year, it will double in
72
3
= 24 years
If population grows by 1.5%
per year, it will double in
72
1.5
= 48 years
$1,000 invested at a compound
rate of return of 10% per year
will grow to $2,000 in
72
10
= 7.2 years
Effectiveness and Efficiency
Because economic resources are scarce, it is important
that they be used well, or effectively and efficiently:
Effectiveness:
&
Efficiency:
Producing goods & services
that are wanted and needed
Producing goods & services at a
low production cost per unit.
High standard
of living
Consumers enjoy lots of useful
goods & services, at low prices
Page 10-11
A companys sales staff provide
feedback and suggestions to
management, based on their
experiences with customers.
Increase effectiveness
through improvement of products & services
Explain how each of the following decisions would
be intended to affect either effectiveness or efficiency:
The introduction of a piece rate incentive plan, under which
workers are paid according to the number of units they
produce.
Increase efficiency,
by motivating workers to produce
more units per hour
lower production cost per unit & higher output
Any possible negative side-effects?
Could reduce effectiveness (eg-product quality),
if workers hurried too much.
A company reduces staff in order to cut costs
and increase profits.
Increase efficiency,
as fewer workers must handle the same amount of business/production
lower production cost per unit
Any possible negative side-effects?
Could reduce effectiveness (i.e. quality of the
product or service), if workers were overworked.
A profit sharing plan for all employees,
whereby a portion of the firms annual
profits are shared with employees.
Efficiency
Effectiveness
Both should increase.
The use of industrial robots that are programmed to
perform industrial tasks repetitively and with precision.
Efficiency
Effectiveness
Both should increase.
How might you measure the effectiveness
of Sheridan College?
How might you measure the efficiency of Sheridan College?

job success of graduates

government uses KPI (Key Performance Indicator)


surveys of students, graduates and employers

cost per student (lower = more efficient)

class sizes (larger lower cost per student


more efficient)
students per square metre (more = more efficient
use of facilities)

students per teacher (more = more efficient


use of teachers)
How might you increase the efficiency of Sheridan College?
What effect might this have on the effectiveness
of Sheridan College?
Note the conflict between goals -- a more complex
management task than automating a factory.
Increase labour productivity via larger classes
Reduce labour costs via more part-time teachers
Reduce it - less help for students (quality of service)
- less time for curriculum development
(quality of product)
The Three Basic Questions of Economics
Because we lack the resources to produce everything
that we would like to have, society must make choices:
1. What to Produce
(and not produce)
i.e. set priorities
2. How to Produce it
- high volume/low cost
3. Who gets how much
or how to divide it up
Pages 11-13
effectiveness as a goal
efficiency as a goal
1. What to produce?

more food?
more cars?
more DVD players?
more day care centres?
more education?
more health care services?
more seniors homes?
more health care facilities?
and what not to produce, due to the reality of
opportunity cost; which means that:
more of one thing means less of something else
Must set priorities decide what to produce
Page 11-12
The most basic choice: Consumer Goods vs Capital Goods
Consumer goods
(food, fuel, etc.)
ECONOMIC RESOURCES
Capital goods
(tools, equipment, etc.)
Benefits in the
present (now)
Benefits in
the future
Need a balance
Page 12
2. How to produce it?
Goal is efficiency higher output at lower cost per unit
= a question of production methods:
what combination of labour & equipment to use
so as to get maximum output per unit of input?
remembering that building equipment (capital goods
brings not only benefits, but also costs (opportunity costs),
in terms of:
reduced production of other goods consumer goods
that could be enjoyed in the present.
Page 12-13
Created by Brian Lyons 2008
3. How to Divide Up the Economic Pie?
How should the goods & services we produce be divided
among the people?
Equally?
Or should some get more than others?
Society will prosper economically
if the work of its people is effective & efficient.
want incentives for people to be effective & efficient
= an argument for economic inequality
But how much inequality is socially acceptable?
and how much should we share with those who
are not able to contribute as much as others?
or not willing to do so?
Page 13
The 3 basic economic questions are:
1. What goods/services to produce?
(and not produce)
2. How to produce these goods/ services?
(the production methods to use)
3. For whom to produce, or how to divide up these
goods & services? (Who will get how much?)
Every society faces these questions
But how to answer them?
Chapter 2 how the economic system works
Page 14
A companys decision to introduce a new
car
that is designed in a manner that will
appeal
to higher-income women is an example of
(a) a what to produce decision.
(b) a how to produce decision.
(c) a for whom decision.
(d) a why to produce decision.
(e) None of the above.
A government decision to increase income
taxes
on high-income Canadians by $10 billion and
to
reduce income taxes on low-income Canadians
by
$5 billion and to increase financial support to
unemployed Canadians by $5 billion is an
example
of
(a) a what to produce decision.
(b) a how to produce decision.
(c) a why to produce decision.
(d) a for whom decision.
(e) None of the above.
John works for 4 hours and picks 12 baskets of berries.
Jane works for 3 hours and picks 12 baskets of berries.
This means that
(a) Johns productivity and Janes productivity
are equal.
(b) Janes productivity is 33 percent higher
than Johns productivity.
(c) Janes productivity is 50 percent higher
than Johns productivity.
(d) John should be fired.
Janes productivity is 4 per hour (12/3).
Johns productivity is 3 per hour (12/4).
4 is 33% higher than 3.
(1 more on the base of 3, or 1/3)
How to Succeed?
Know your facts
Think logically
Communicate effectively
OK, but what about in this course?
How to Succeed?
After each chapter: PRACTICE & CHECK YOUR ANSWERS
Do the Review Questions and Critical Thinking Questions
after the chapter in the text.
Do the on-line self-check on SLATE.
Whenever studying: USE THE LEARNING OUTCOMES
These will focus your efforts on what will be covered
on quizzes and tests.
If you attend classes, work regularly at practicing with
the review and self-check questions, and use the
objectives when studying, then you should do well in this
course.
Next: Chapter 2:
Canadas Economic System
Do the Self-Check questions on SLATE.
Do the Review Questions and Critical
Thinking questions at the end of Chapter
1, and check your answers in the
appendix to the text.