Principles of Microeconomics
,This work is licensed under a Creative Commons-ShareAlike 4.0 International License
Original source: BCcampus OpenEd
http://open.bccampus.ca/find-open-textbooks/?uuid=ca7d2b03-11f0-49ed-8efb-
e7a5ac4f9cae&contributor=&keyword=&subject=Economics
,Contents
Preface ............................................................................................................................1
Additional Material for Instructors ........................................................................................3
Chapter 1 Economics: The Study of Choice .................................................................4
1.1 Start Up: Economics in the News .....................................................................................4
1.2 Defining Economics............................................................................................................5
LEARNING OBJECTIVES ....................................................................................................5
1.2.1 Scarcity, Choice, and Cost ......................................................................................5
1.2.1.1 Scarcity .........................................................................................................5
1.2.1.2 Scarcity and the Fundamental Economic Questions ..............................6
1.2.1.3 Opportunity Cost..........................................................................................7
KEY TAKEAWAYS ...............................................................................................8
TRY IT! ................................................................................................................8
Case in Point: The Rising Cost of Energy .......................................................8
ANSWERS TO TRY IT! PROBLEMS .................................................................10
1.3 The Field of Economics ....................................................................................................10
LEARNING OBJECTIVES ..................................................................................................10
1.3.1 The Economic Way of Thinking ...........................................................................11
1.3.1.1 Opportunity Costs Are Important ...........................................................11
1.3.1.2 Individuals Maximize in Pursuing Self-Interest .....................................12
1.3.1.3 Choices Are Made at the Margin .............................................................12
1.3.2 Microeconomics and Macroeconomics .............................................................13
1.3.3 Putting Economics to Work .................................................................................14
1.3.3.1 Careers in Economics ................................................................................14
1.3.3.2 Applying Economics to Other Fields ........................................................14
KEY TAKEAWAYS .............................................................................................19
TRY IT! ..............................................................................................................19
Case in Point: The Financial Payoff to Studying Economics .....................19
ANSWER TO TRY IT! PROBLEM .....................................................................20
1.4 The Economists’ Tool Kit ..................................................................................................21
LEARNING OBJECTIVES ..................................................................................................21
1.4.1 Models in Economics ............................................................................................22
1.4.2 Testing Hypotheses in Economics ......................................................................22
1.4.2.1 The All-Other-Things-Unchanged Problem ............................................23
1.4.2.2 The Fallacy of False Cause ........................................................................23
1.4.2.3 Normative and Positive Statements ........................................................24
KEY TAKEAWAYS .............................................................................................25
TRY IT! ..............................................................................................................25
Case in Point: Does Baldness Cause Heart Disease? ................................25
ANSWER TO TRY IT! PROBLEM .....................................................................26
1.5 Review and Practice .........................................................................................................26
Summary .........................................................................................................................26
PROBLEMS ......................................................................................................................27
, Chapter 2 Confronting Scarcity: Choices in Production ..........................................29
2.1 Start Up: Tightening Security at the World’s Airports .................................................29
2.2 Factors of Production.......................................................................................................30
LEARNING OBJECTIVES ..................................................................................................30
2.2.1 Labor ......................................................................................................................31
2.2.2 Capital ....................................................................................................................31
2.2.3 Natural Resources ................................................................................................32
2.2.4 Technology and the Entrepreneur ......................................................................33
KEY TAKEAWAYS .....................................................................................................33
TRY IT! ......................................................................................................................34
Case in Point: Technology Cuts Costs, Boosts Productivity and Profits ..........34
ANSWERS TO TRY IT! PROBLEMS .........................................................................35
2.3 The Production Possibilities Curve .................................................................................36
LEARNING OBJECTIVES ..................................................................................................36
2.3.1 Constructing a Production Possibilities Curve...................................................36
2.4 Comparative Advantage and the Production Possibilities Curve ...............................40
2.4.1 The Law of Increasing Opportunity Cost ............................................................42
2.4.2 Movements Along the Production Possibilities Curve ......................................44
2.4.3 Producing on Versus Producing Inside the Production Possibilities Curve ..46
2.4.3.1 Idle Factors of Production .........................................................................46
2.4.3.2 Inefficient Production ................................................................................47
2.4.3.3 Specialization ..............................................................................................50
KEY TAKEAWAYS .............................................................................................50
TRY IT! ..............................................................................................................51
Case in Point: The Cost of the Great Depression .......................................52
ANSWER TO TRY IT! PROBLEM .....................................................................52
2.5 Applications of the Production Possibilities Model ......................................................53
LEARNING OBJECTIVES ..................................................................................................53
2.5.1 Comparative Advantage and International Trade.............................................53
2.5.2 Economic Growth ..................................................................................................55
2.5.2.1 The Sources of Economic Growth ............................................................56
2.5.2.2 Waiting for Growth ....................................................................................60
2.5.3 Arenas for Choice: A Comparison of Economic Systems ................................60
2.5.3.1 Classifying Economic Systems ..................................................................61
2.5.4 Government in a Market Economy .....................................................................63
KEY TAKEAWAYS .....................................................................................................64
TRY IT! ......................................................................................................................64
Case in Point: The European Union and the Production Possibilities Curve .64
ANSWER TO TRY IT! PROBLEM .............................................................................66
2.6 Review and Practice .........................................................................................................67
Summary .........................................................................................................................67
CONCEPT PROBLEMS ....................................................................................................68
NUMERICAL PROBLEMS ................................................................................................70
Chapter 3 Demand and Supply ...................................................................................74
3.1 Start Up: Crazy for Coffee ...............................................................................................74
,This work is licensed under a Creative Commons-ShareAlike 4.0 International License
Original source: BCcampus OpenEd
http://open.bccampus.ca/find-open-textbooks/?uuid=ca7d2b03-11f0-49ed-8efb-
e7a5ac4f9cae&contributor=&keyword=&subject=Economics
,Contents
Preface ............................................................................................................................1
Additional Material for Instructors ........................................................................................3
Chapter 1 Economics: The Study of Choice .................................................................4
1.1 Start Up: Economics in the News .....................................................................................4
1.2 Defining Economics............................................................................................................5
LEARNING OBJECTIVES ....................................................................................................5
1.2.1 Scarcity, Choice, and Cost ......................................................................................5
1.2.1.1 Scarcity .........................................................................................................5
1.2.1.2 Scarcity and the Fundamental Economic Questions ..............................6
1.2.1.3 Opportunity Cost..........................................................................................7
KEY TAKEAWAYS ...............................................................................................8
TRY IT! ................................................................................................................8
Case in Point: The Rising Cost of Energy .......................................................8
ANSWERS TO TRY IT! PROBLEMS .................................................................10
1.3 The Field of Economics ....................................................................................................10
LEARNING OBJECTIVES ..................................................................................................10
1.3.1 The Economic Way of Thinking ...........................................................................11
1.3.1.1 Opportunity Costs Are Important ...........................................................11
1.3.1.2 Individuals Maximize in Pursuing Self-Interest .....................................12
1.3.1.3 Choices Are Made at the Margin .............................................................12
1.3.2 Microeconomics and Macroeconomics .............................................................13
1.3.3 Putting Economics to Work .................................................................................14
1.3.3.1 Careers in Economics ................................................................................14
1.3.3.2 Applying Economics to Other Fields ........................................................14
KEY TAKEAWAYS .............................................................................................19
TRY IT! ..............................................................................................................19
Case in Point: The Financial Payoff to Studying Economics .....................19
ANSWER TO TRY IT! PROBLEM .....................................................................20
1.4 The Economists’ Tool Kit ..................................................................................................21
LEARNING OBJECTIVES ..................................................................................................21
1.4.1 Models in Economics ............................................................................................22
1.4.2 Testing Hypotheses in Economics ......................................................................22
1.4.2.1 The All-Other-Things-Unchanged Problem ............................................23
1.4.2.2 The Fallacy of False Cause ........................................................................23
1.4.2.3 Normative and Positive Statements ........................................................24
KEY TAKEAWAYS .............................................................................................25
TRY IT! ..............................................................................................................25
Case in Point: Does Baldness Cause Heart Disease? ................................25
ANSWER TO TRY IT! PROBLEM .....................................................................26
1.5 Review and Practice .........................................................................................................26
Summary .........................................................................................................................26
PROBLEMS ......................................................................................................................27
, Chapter 2 Confronting Scarcity: Choices in Production ..........................................29
2.1 Start Up: Tightening Security at the World’s Airports .................................................29
2.2 Factors of Production.......................................................................................................30
LEARNING OBJECTIVES ..................................................................................................30
2.2.1 Labor ......................................................................................................................31
2.2.2 Capital ....................................................................................................................31
2.2.3 Natural Resources ................................................................................................32
2.2.4 Technology and the Entrepreneur ......................................................................33
KEY TAKEAWAYS .....................................................................................................33
TRY IT! ......................................................................................................................34
Case in Point: Technology Cuts Costs, Boosts Productivity and Profits ..........34
ANSWERS TO TRY IT! PROBLEMS .........................................................................35
2.3 The Production Possibilities Curve .................................................................................36
LEARNING OBJECTIVES ..................................................................................................36
2.3.1 Constructing a Production Possibilities Curve...................................................36
2.4 Comparative Advantage and the Production Possibilities Curve ...............................40
2.4.1 The Law of Increasing Opportunity Cost ............................................................42
2.4.2 Movements Along the Production Possibilities Curve ......................................44
2.4.3 Producing on Versus Producing Inside the Production Possibilities Curve ..46
2.4.3.1 Idle Factors of Production .........................................................................46
2.4.3.2 Inefficient Production ................................................................................47
2.4.3.3 Specialization ..............................................................................................50
KEY TAKEAWAYS .............................................................................................50
TRY IT! ..............................................................................................................51
Case in Point: The Cost of the Great Depression .......................................52
ANSWER TO TRY IT! PROBLEM .....................................................................52
2.5 Applications of the Production Possibilities Model ......................................................53
LEARNING OBJECTIVES ..................................................................................................53
2.5.1 Comparative Advantage and International Trade.............................................53
2.5.2 Economic Growth ..................................................................................................55
2.5.2.1 The Sources of Economic Growth ............................................................56
2.5.2.2 Waiting for Growth ....................................................................................60
2.5.3 Arenas for Choice: A Comparison of Economic Systems ................................60
2.5.3.1 Classifying Economic Systems ..................................................................61
2.5.4 Government in a Market Economy .....................................................................63
KEY TAKEAWAYS .....................................................................................................64
TRY IT! ......................................................................................................................64
Case in Point: The European Union and the Production Possibilities Curve .64
ANSWER TO TRY IT! PROBLEM .............................................................................66
2.6 Review and Practice .........................................................................................................67
Summary .........................................................................................................................67
CONCEPT PROBLEMS ....................................................................................................68
NUMERICAL PROBLEMS ................................................................................................70
Chapter 3 Demand and Supply ...................................................................................74
3.1 Start Up: Crazy for Coffee ...............................................................................................74
