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1st-year economic students always complain that ECO100‘s material is difficult and boring. Some students may not have the motivation and the persistence to finish the course. However, this 1st-year material is actually used to build a good foundation for your future years. Here are 4 significant theories in Eco 100 that you will always use for the next 3 years at UTM.

1. The indifference curve and budget constraint in utility theory.

Utility theory explains the consumers’ behavior based on their preference for consuming various goods in combination, and the consumers’ ability to afford their spending. Usually, a budget constraint and a utility function are given. You need to use the given equations to derive an optimal point, or the equilibrium bundle of goods, which represents the most preferred and affordable combination of goods that the consumer would choose. Also in instances where there is a change in the price of goods or consumers’ income, this will also require you to distinguish the change of income effect and substitution effect. Utility theory is vastly used in the 200, 300 and 400 level economic courses, such as Eco 200, Eco 202, Eco 206, Eco 208, Eco 344, Eco 433.

2. Profit Maximization.

Profit Maximization is used to find the good’s market price and the output quantity, which can help a firm to earn the most profit. It is a very common practice for microeconomics firm’s problem. The “Objective Profit Function” which can be presented as denoting a meaning of maximizing the gap between the total revenue and the total cost. The maximized profit is usually found when the marginal revenue is equal to the marginal cost under the first order of condition. When there is a negative cost function under the second order condition, that proves the cost function in output has a convex shape. This is commonly used in most of the microeconomic course such as Eco 200, Eco 206, Eco 326 and so on.

 3. Economies of scale

The concept of the Economies of Scale is saying that the larger the scale of a firm’s production is, the lower the input price it can negotiate with its vendor or supplier. The Economies of Scale can be caused by labor specialization, investment in more efficient or high tech capital, or simply mass production.   The graph of the Economic of Scale shows that the “Short Run Average Total Cost” of a firm is lying on the downward segment of the “Long Run Average Total Cost”. It shows the fact firms which operating under Economies of Scale can enhance their competitiveness by increasing their output and shrinking their input price. You will need this concept in some 300 level economic courses with the topic of international trade, Urban Economics and so on.

4. The national income or the GDP equation.

It is one of the most significant equations in the topic of macroeconomics. The national income has the equation of [..].  It is important because a lot of macroeconomics models will eventually link back to the national income; such as the money market model can affect Consumption and Investment when there is an expansionary monetary policy, and the foreign exchange rate model can affect the net export of a country and so on. You will see this a lot in the macroeconomic topics such as international monetary market, Solow growth, and international trade.

Eco 100 is fun, and you will appreciate this course even more, when you see that the things that you have learned in your first year are used in your upper year courses. So, never give up or feeling discouraged when you study Eco 100. Every ounce of your effort you put into this course is actually building a good foundation to prepare you for future economic courses.


Jason tse

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