- Course Introduction
The purpose of this course is to provide you with a basic understanding of the principles of microeconomics. At its core, the study of economics deals with the choices and decisions that have to be made in order to manage scarce resources available to us. Microeconomics is the branch of economics that pertains to decisions made at the individual level, i.e., by individual consumers or individual firms after evaluating resources, costs, and tradeoffs. When we talk about the economy, we are referring to the marketplace or system in which these choices interact with one another. In this course, you will learn how and why these decisions are made and how they affect one another in the economy. Each of the following units has been designed as a building block, where the concepts you learn in one unit will enable you to understand the material you discover in the next unit. By the end of this course, you will have a strong grasp on the major issues that face microeconomists, including consumer and producer behavior, the nature of supply and demand, the different kinds of markets and how they function, and the welfare outcomes of consumers and producers. You will also be able to apply the formal principles you learn to real world issues. The scope and emphasis of this course goes beyond a general understanding of microeconomics to incorporate the core concepts of the overall field of economics.
- Unit 1: Introduction to Economics: What Is It?
Before we dive into the principles of microeconomics, we need to define some of the major ideas that lie at the heart of economics. What, for example, is the economic way of thinking? What do economists mean when they throw around terms like market structure and the invisible hand? This unit will identify and define these terms before addressing the driving principle behind microeconomics: the idea that individuals and firms (economic agents) make rational choices based on self-interest. These decisions are necessary, because all resources are scarce. In other words, no good or item is infinitely available. This unit will also introduce you to a number of economic models, the assumptions and constraints associated with each, and the ways they help us better understand real-life situations.
Completing this unit should take you approximately 9 hours.
- 1.1: Individual Choice: The Core of Economics
- 1.1.1: Scarce Resources, Choices, and Opportunity Costs
The concept of opportunity cost is critical to understanding individual choice, because you always have to give up something in order to get another thing. In other words, the real cost of purchasing good A is equal to the value of the next best alternative (good B) that you give up in order to purchase good A. For example, what would you rather be doing instead of studying this course? The task that you have forgone in order to study economics is the opportunity cost of studying economics.
- 1.1.2: Getting to Know Economics
As you read the materials in this subunit, pay particular attention to what is meant by the "economic way of thinking." You will want to get used to using this lens or mode of thinking as a way to understand the work that economists do and why economic principles are so widely applicable across a number of fields. This subunit also examines the key differences between microeconomics and macroeconomics and between normative economics and positive economics.
- 1.1.3: Review of Data Representation and Mathematics for Economics
Economics communicates information in a variety of formats: text, tables, graphs, mathematical expressions, and more. The following resources explain the form and function of a number of these formats, as well as their use within the context of economics.
Completing this section is optional. However, this course will expect you to have the following competencies, so be sure to review this subunit if you are not confident about your skill level:
- Read data from a table and transform it into a graph.
- Understand the coordinate plane (x, y) and its use for constructing graphs.
- Calculate the slope of a linear graph and be able to explain what the numeric value of a slope means and the significance of negative versus positive slopes.
- Understand the linear equation of a line, .
- Explain what an intercept is and how to determine it.
- 1.2: Economic Models
- 1.2.1: The Production Possibility Frontier
- 1.2.2: Comparative Advantage vs. Absolute Advantage
This model is an application of the production possibility frontier studied in the previous section, albeit in a global set-up. In this subunit, we will bring the argument for international trade, specialization, comparative advantage, and the resulting economic growth to light. The mechanics of comparative advantage will reveal why it would benefit a country to import goods it produces at home.
- 1.2.3: Analyzing Advantage
Absolute and comparative advantage is a difficult topic. This quiz challenges you to use analytical reasoning to explore what absolute advantage and comparative advantage actually mean, what opportunity costs are, and the real choices that national economies have to make.
- 1.3: The Circular-Flow Diagram
- Topic 12
- Unit 2: Supply and Demand
This unit will first introduce you to the ceteris paribus assumption, which is crucial to building correlations between economic variables. When using ceteris paribus, we assume that all variables - with the exception of those in explicit consideration - will remain constant. We will then examine the supply and demand models and the resulting market equilibrium that occurs where the supply curve and the demand curve intersect. We will also look at what causes movements along the curve and the set of factors that cause the curves to shift, affecting both price and quantity, before discussing the meaning and significance of elasticity.
Next, we will take a look at what happens when a market fails to produce a reasonable equilibrium. This situation typically occurs when either the market is not competitive or complete, or its participants are ill-informed. We will evaluate various ways in which the government can address these failures and begin to understand the intricate relationship between government and economics.
Completing this unit should take you approximately 18 hours.
- 2.1: The Ceteris Paribus Assumption
- 2.2: Demand
- 2.2.1: The Demand Curve
This topic is covered by the material in subunit 2.2. The demand curve shows the relationship between the price of a good and the quantity demanded at each price. The demand curve is negatively sloped because of the inverse relationship between price and quantity demanded. For example, assuming that the ceteris paribus condition applies, i.e., all other factors affecting demand remain unchanged, if the price of an iPhone drops, what do you think will happen to the demand for the iPhone? Conversely, if the price increases, would more people be buying the iPhone or less.
- 2.2.2: Changes in Demand
This topic is covered by the material in subunit 2.2. Pay special attention to movement along the curve versus shifts of the curve. The former refers to changes in the quantity demanded due to price changes. The latter refers to the breakdown of the ceteris paribus condition. In order to understand shifts in demand curve, you need to know that price remains constant and the shift of the demand curve is in response to changes in other factors that affect demand, including changes in the prices of related goods, changes in income, changes in tastes, and changes in expectations.
The resulting effect is that a rightward shift of the curve indicates an increase in demand and signifies that at any given price, consumers demand a larger quantity of the good than before, while a decrease in demandrefers to a leftward shift of the curve and signifies that at any given price, consumers demand a smaller quantity of the good than before.
- 2.3: Supply
- 2.3.1: The Supply Curve
This topic is covered by the material in subunit 2.3. The supply curve is a mirror reflection of the demand curve. You should recognize that the supply curve operates from the firm's point of view, such that if a product is highly priced, the firm will want to supply more of it. As such, it is a positively sloped curve indicating the positive relationship between price of the good and quantity supplied.
- 2.3.2: Changes in Supply
This topic is covered by the material in subunit 2.3. The demand curve is similar to the supply curve in that an increase in supply refers to a rightward shift of the curve and signifies that there will be a larger quantity of the good than before; a decrease in supply refers to a leftward shift of the curve and signifies that there will be a lesser quantity of the good than before. This section will present the three principal factors that shift the supply curve: changes in input prices, changes in technology, and changes in expectations.
- 2.4: Market Equilibrium
- 2.4.1: Market Equilibrium
- 2.4.2: Market Surplus and Shortage
- 2.4.3: Simultaneous Shifts in Supply and Demand
- 2.4.4: Putting Demand and Supply to Work
- 2.5: Manipulating the Market: Price Controls
- 2.6: Elasticity
- Unit 2 Review
- Topic 29
- Unit 3: Markets and Individual Maximizing Behavior
This unit will examine the ways in which markets increase overall welfare through the concepts of consumer and producer surplus. We will discuss the concepts of marginal costs and benefits and take a look at how they affect a firm's decision on whether or not to make one more or one less product.
We have already learned that, at its most fundamental level, microeconomics is the study of how we make decisions. To expand on this point, we need to distinguish between the either/ordecision and the how much decision. You will find this concept useful when looking more closely at why firms produce certain levels of output, taking into consideration opportunity cost and sunk (fixed) cost.
This unit concludes with the causes and ramifications of income inequality. While there is much debate about how to address long term inequality, economists can objectively measure the problem's scope and offer options to manage this economic phenomenon. Protracted poverty and inequality can cause long term harm to an economy's development.
Completing this unit should take you approximately 10 hours.
- 3.1: Maximizing in the Market Place
- 3.2: When Markets Fail
- 3.3: Income Inequality
- Topic 34
- Unit 4: The Consumer
This unit will focus on the individual consumer and the characteristics that compel a consumer (to choose) to spend income on goods and services. The consumer experiences utility - a measure of satisfaction - with every purchase that he or she makes, and economists measure that utility in order to find a consumer's optimal rate of consumption. The Theory of Demand is derived from the Theory of Consumer Behavior presented in this unit. An individual's demand function can be explained by two approaches that help illustrate personal preferences: utility analysis and indifference analysis. You will explore these concepts more fully in this unit.
Completing this unit should take you approximately 12 hours.
- 4.1: The Rational Consumer
- 4.2: Consumer Preferences and Consumer Choice
- 4.2.1: Consumer Theory and Indifference Curves
- 4.2.2: Utility Maximization
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).
- 4.2.3: Elasticity
- Unit 4 Review
- Topic 42
- Unit 5: The Producer
In this unit, you will learn about one of the most important economic agents: the producer. The producer (firm) is responsible for creating the production function (output) and is subject to various cost measures as well as the results of diminishing returns. You will explore these ideas more fully as you delve into the relationship between quantity of input and quantity of output. This unit will discuss how and why a firm's costs may differ in the short run versus the long run.
Completing this unit should take you approximately 8 hours.
- 5.1: The Short Run
- 5.1.1: The Short Run Production Function
- 5.1.2: Costs in the Short Run
- 5.2: The Long Run
- Unit 5 Review
- Topic 49
- Unit 6: Market Structure: Competitive and Non-competitive Markets
This unit will introduce the concept of perfect competition, an ideal model that serves as a benchmark against which real-world market structures are analyzed. Also known as the model of pure competition, perfect competition results in an efficient allocation of resources. In the real world, however, unregulated markets (which are central to perfect competition) may fail to create desired outcomes for a number of reasons. Economists refer to these situations as examples of imperfect competition.
In this unit, you will first study the Model of Perfect Competition and then move on to what may be considered the antithesis of perfect competition, the Monopoly Model. You will then learn about imperfect competition and the two models that fall under it: monopolistic competition and oligopoly. This unit will also touch upon game theory through the Prisoner's Dilemma Model and a discussion of the Nash Equilibrium.
Completing this unit should take you approximately 23 hours.
- 6.1: Perfect Competition
- 6.2: Non-competitive Markets: Monopoly
- 6.3: Imperfect Competition
- 6.3.1: Monopolistic Competition
- 6.3.2: Oligopoly
- 22.214.171.124: Game Theory
- 126.96.36.199: Nash Equilibrium
- Unit 6 Review
- Topic 59
- Unit 7: Resource Markets
This unit outlines how firms decide how much they will use their resources (which include land, labor, capital, and entrepreneurial ability – all of which are required to produce the final good) and at what price. The demand for resources is derived from the demand for the final goods that are produced with them. For example, if the demand for automobiles (the final good) were to increase, the demand for steel (and any other resource used in the production of the auto) would also increase.
Completing this unit should take you approximately 3 hours.
- 7.1: Overview of Resource Markets
- 7.2: The Labor Market
- 7.3: Financial Markets
- 7.4: Land and the Market for Natural Resources