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University of Toronto Scarborough
Economics for Management Studies

MGEB02 Week 1 09/06/13 Chapter One: Preliminaries  Economics is divided into 2 main parts:  Microeconomics: branch of economics that deals w/ the behaviour of individual economic units – consumers, firms, workers, and investors – as well as markets that these units comprise  Macroeconomics: branch of economics that deals w/ aggregate economic variables, such as the level & growth rate of national output, interest rates, unemployment, and inflation Section 1.1: The Themes of Microeconomics  Microeconomics is about the allocation of scarce resources  In countries w/ planned economies, micro is of lil relevance cuz ppl r told wht to make, how much n where to live & work Trade-Offs  In modern market economies, consumers, workers, n firms have much more flexibility & choice wen it comes to allocating scare resources  Consumers  They have limited income, can b spent r saved  Consumer theory  how consumers, based on their preferences, maximize their well-being by trading off the purchase of more of some goods for the purchase of less of others  trading current consumption for future consumption, by saving  Workers  Ppl need to decide whether & wen to enter the workforce  Availability to work depends on – education attained, skills accumulated  Some ppl like large companies w/ mre job security but limited room for advancement, others like mre opportunity for advancement @ smaller companies but less security  Trade off labour for leisure  Firms  Need to decide how to allocate resources  Theory of a firm  Decide how to deal with trade-offs to get the best situation Prices and Markets  All trade-offs r based on prices faced by consumers, workers or firms  Micro decides how prices r determined  Planned economy ~ prices r set by the gov’t  Market economy ~ prices r determined by the interaction of consumers, workers, n firms  Interaction occur in markets (the collection of buyers & sellers that together determine the prices of a good) 1 | P a g e MGEB02 Week 1 09/06/13 Theories and Models  Theories r developed to explain observed phenomena in terms of a set of basic rules n assumptions  Economic theories r the basis for making predictions  Modes- a mathematical representation, based on economic theory, of a firm, a market, or some other entity  Statistics & econometrics also let us measure the accuracy of our predictions Positive versus Normative Analysis  Positive Analysis: analysis describing relationships of cause and effect  Normative analysis: analysis examining questions of what ought to be  Not only concerned w/ alternative policy options; also involves the design of particular
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