Week 1 chapter notes

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University of Toronto Scarborough
Economics for Management Studies

Chapter 1 Preliminaries Notes N microeconomics branch of economics that deals with the behaviour of individual economic unitsconsumers, firms, workers, and investorsas well as the markets that these units comprise N it explains how consumers make purchasing decisions and how their choices are affected by changing prices and incomes, and also explains how firms decide how many workers to hire and how workers decide where to work and how much work to do N another important concern of microeconomics is how economic units interact to form larger unitsmarkets and industries N by studying the behaviour and interaction of individual firms and consumers, it reveals how industries and markets operate and evolve, why they differ from one another, and how they are affected by government policies and global economic conditions N macroeconomics branch of economics that deals with aggregate economic variables, such as the level and growth rate of national output, interest rates, unemployment, and inflation N macroeconomists have become increasingly concerned with the microeconomic foundations of aggregate economic phenomena, and much of microeconomics is actually an extension of microeconomic analysis 1.1 The Themes of Microeconomics N much of microeconomics is about limitsthe limited incomes that consumers can spend on goods and services, the limited budgets and technical know-how that firms can use to produce things, and the limited number of hours in a week that workers can allocate to labour or leisurebut it is also about ways to make the most of these limits N more precisely, it is about the allocation of scarce resources Trade-Offs N in modern market economies, consumers, workers, and firms have much more flexibility and choice when it comes to allocating scarce resources; unlike in planned economies such as that of Cuba, North Korea, or the former Soviet Union N microeconomics describes the trade-offs that consumers, workers, and firms face, and shows how these are best made N consumers have limited incomes, which can be spent on a wide variety of goods and services, or saved for the future N consumer theory describes 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 N workers also face constraints and make trade-offs(1) they must decide whether and when to enter the workforce, which means they face trade-offs between working now and continued education; (2) they face trade-offs in their choice of employment; and (3) they must sometimes decide how many hours per week they wish to work, thereby trading off labour for leisure N firms also face limits in terms of the kinds of products that they can produce, and the resources available to produce them N the theory of the firm describes how these trade-offs can best be made Prices and Markets N a second important theme of microeconomics is the role of prices
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