Chapter 1 - An introduction to microeconomics. In this chapter students will be able to: Convey the scope of microeconomic theory; explain why theory, is essential to understanding and predicting real-world outcomes; distinguish between positive and normative analyses;. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 1: An Introduction to Microeconomics Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Convey the scope of microeconomic theory. Explain why theory, is essential to understanding and predicting real-world outcomes. Distinguish between positive and normative analyses. Differentiate between real and nominal prices. Describe the basic assumptions economists make about market participants. Introduce the concept of opportunity cost and explain how economic costs differ from accounting costs. Show how a production possibility frontier graphically depicts the basic assumptions economists make about market actors as well as the concept of opportunity cost. THE SCOPE OF MICROECONOMIC THEORY Convey the scope of microeconomic theory. The Scope of Microeconomic Theory “micro-” derives from the Greek word “mikros-” Microeconomics the . | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 1: An Introduction to Microeconomics Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Convey the scope of microeconomic theory. Explain why theory, is essential to understanding and predicting real-world outcomes. Distinguish between positive and normative analyses. Differentiate between real and nominal prices. Describe the basic assumptions economists make about market participants. Introduce the concept of opportunity cost and explain how economic costs differ from accounting costs. Show how a production possibility frontier graphically depicts the basic assumptions economists make about market actors as well as the concept of opportunity cost. THE SCOPE OF MICROECONOMIC THEORY Convey the scope of microeconomic theory. The Scope of Microeconomic Theory “micro-” derives from the Greek word “mikros-” Microeconomics the study of the behavior of small economic units such as consumers and firms focuses on individuals as fundamental decision makers in a society also referred to as “price theory” THE NATURE AND ROLE OF THEORY Explain why theory, is essential to understanding and predicting real-world outcomes. The Nature and Role of Theory A theory shows how facts are related to one another. Theory is based on certain assumptions. can be used to predict as well as explain real-world outcomes. “Good” theory – a theory that successfully explains and predicts the phenomena that it is intended to explain and predict. POSITIVE VERSUS NORMATIVE ANALYSIS Distinguish between positive and normative analyses. Positive versus Normative Analysis Positive analysis – assessment of expected objective outcomes; draws on accepted rules of logic and evidence Normative analysis – a nonscientific value judgment; subjective MARKET ANALYSIS AND REAL VERSUS NOMINAL PRICES Differentiate between real
