Micro and Macroeconomics: Understanding Economics Branches, Markets, and Prices, Appunti di Microeconomia

Scarica Micro and Macroeconomics: Understanding Economics Branches, Markets, and Prices e più Appunti in PDF di Microeconomia solo su Docsity! Chapter 1 Preliminaries Economics is divided into two main branches: Microeconomics - deals with the behavior of individual economic units (consumers, workers, investors, firms)- any entity playing a role in the functioning of economy - explains how and why these units make economic decisions - how economic units interact to form larger units – markets and industries (how industries operate and evolve, how prices determined, how they are affected by government policies) Macroeconomics - deals with the aggregate economic quantitity variables such as the level of growth rate of national output, interest rates, unemployement and inflation. The two boundries has become less distinct since Macroeconomics also involves the analysis of market (microeconomics’ fundations of aggregate economic phenomena). In this perspection, Macroeconomics becomes an extension of Microeconomics analysis. Themes of Microeconomics Limits – the limited incomes that consumers can spend on goods and services, the limited budgets and technical know- how that firms can use to produce things, the limited numbers of hours. Microeconomics is much about ways to make the most of these limits , more precisely dealing with the the allocation of scarce resources. In a planned economy such as Cuba, N.Korea or the Soviet Union these allocation decisions are made mostly by governmental decisions. Firms are told how much and how to produce, having little flexibility. Consumers have very limited set of goods to choose from. Trade-offs – In modern market economies there is a flexibility of allocating the scarce resources. Micro describes the trade-offs that consumers, workers and firms face, and how these trade-offs are best made. The idea is to make the optimal trade-offs. Prices and Markets The role of prices is quite important because the trade-offs are based on the prices faced by consumers, workers and firms. Micro also describes how prices are determined In a market economy prices are determined by the interactions of consumers, workers and firms. These interactions occur in market collection of buyers and sellers that together determine the price of a good Theories and Models Like any science, Economics is concerned with the explanations of observed phenomena. Explanations and prediction are based on theories developed to explain observed phenomena in terms of a set of basic rules and assumptions. The Theory of the Firm, for example. Economic theories are also the basis for making predictions. With the application of statistical and econometric techniques, theories can be used to cinstruct models from which quantitative predictions can be made. A Model is a mathematical representation, based on economic theory. Important to remember is that no theory, whether in economics of physics is perfectly correct. Nonetheless, the theory does explain a broad range of phenomena regarding a topic, therefore has become an important tool for managers or policymakers. Positivie and Normative Analysis Positive: An analysis describing relationships of cause and effect. It is central to Micro as it does give a look to phenomena. Normative: Analysis examining questions of what ought to be. Sometime we want to go beyond explanations and prediction to ask ‘’What is best?’’. Normative analysis is not only concerned with alternative policy options, it also involves in the design of a particular policy choices. What is a Market? In economics Markets are a central focus of analysis. To understand what it is and how it works we distiguish between: buyers – consumers purchasing a good, or a firm which buy labor, capital and raw material sellers – include firms which sell their goods and services, workers selling labor services These two interact to form a market the collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product. Example: Market for PC The buyers are business firms, households and students. The sellers are Hewlett-Packard, Dell, Apple and other firms. Note that a market includes more than an Industry a collection of firms that sell the same related product. Market Definition Determination of buyers, sellers and range of products that should be included in a particular market Potential interactions are importand just as actual one. An example here is the market of gold: difference in buying and selling gold in New York and Zurich. But because the cost of transporting gold is small, buyers could purchase it in Zurich if the prices low. Arbitrage Significant differences in the price of a commodity create a potential for arbitrage buying at a low price at one location and selling at a higher price in another. Competitive and Noncompetitive Markets Perfectly Competitive Market Market with many buyers and sellers, so that no single buyer or seller has a significant impact on price Noncompetitive Markets Some markets contain many producers but are noncompetitive; individual firms can jointly affect the price. The world oil market is one example, since the 1970 the market has been dominated by the OPEC cartel. Market Price Price prevailing in a competitive market. These prices are usually easy to measure (the price of corn, price of gold). In markets that are not perfectly competitive, different firms might charge different prices for the same product. This happens because one firm is trying to win customers from its competitors, or because of customers’ loyalties Non competività The market prices of most goods will fluctuate over time (even rapid for some goods of competitive markets). The stock market for example is highly competitive because there are many buyers and sellers for any one stock. Likewise, the prices of commodities such as wheat, coffee, oil, gold and etc can rise/fall dramatically in a day/week. The Extent of a Market To determine the buyers and sellers of a market we must determine the extent of a market. Its boundries can be geographically and in terms of the range of products in it. This is also an important definition of market, which is important for two reasons: . a company must understand who its actual and potential competitors are for the various products, knowing the product and the geographical boundries in order to set prices and making capital investment decisions . market definition can be important for public policy decisions. Should the government allow a merger or acquisition involving companies that produce the same good, or should it challenge it? Real versus Nominal Prices When we want to make a meaningful comparison of prices of a product with the past, we must be creful to correct for