ECON 302 Chapter Notes - Chapter 1: Planned Economy, Perfect Competition, Consumer Choice
4 Sep 2013
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Microeconomics describes the trade offs that consumers, workers, and firms face, and shows how these trade-offs are best made. Firms: face limits in the types of products they can produce, and the resources available to produce them: theory of the firm: describes how firms work around and engage in trade-offs given the constraints. In a centrally planned economy, prices are set by the government. In a market economy, prices are determined by the interactions of consumers, workers, and firms. These interactions occur in markets, collections of buyers and sellers that together determine the price of a good. In addition, economics is concerned with the explanations of observed phenomena. Theory of the firm: tells us whether a firm"s output level will increase or decrease in response to an increase in wage rates or a decrease in eh price of raw materials. Model: mathematical representation, based on economic theory, of a firm, a market, or some other entity: theories are invariably imperfect.
