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Introduction to Microeconomics International Business Economics

Academic year 2021-2022 v.130721

TOPIC 1 SC A R C I T Y, W O R K A N D C H O I C E Sec. 3.1-3.7, 3.10-3.14 & 4.2 of The Economics INTRODUCTION & OBJECTIVES In this topic we explain how to represent individual decisions in a situation of shortage, that is, when there are not enough resources to achieve all the objectives. When resources are scarce, choosing more of a specific good means giving up an amount of another good, what we call opportunity cost. To represent the individual decision, economists distinguish between the tastes of the person who is making the decision (their preferences); and the set of options available to them (the feasible set or budgetary constraint). The individual decision is then understood as the choice of the best option (according to preferences) among all possible options (according to the feasible set). This model can be applied to the decision of how much to work: the choice of having more free time or more income. It also helps explain the differences in the hours people work in different countries, as well as the changes in our working hours throughout history. At the end of the topic you have to have clear the following concepts, their graphical representation and their interpretation:  Production function  Average product and marginal product  Opportunity cost  Feasible package and budgetary restraint  Curve of indifference  Ratio or Marginal Transformation Rate (RMT)  Marginal Replacement Ratio or Rate (RMS)  Revenue effect and substitution effect

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Introduction to Microeconomics International Business Economics

Academic year 2021-2022 v.130721

PREPARATORY ACTIVITIES TO BE CARRIED OUT BEFORE CLASS At the beginning of the session we will make a short quiz based on the material you have to prepare before class. The link to the quiz will be available in the Aula Global of the course. 1. Read the introduction to Chapter 3 and Sections 3.1, 3.3 and 3.4. Answer the questions in these sections and make sure you know how to explain why the other options are wrong. You don’t need to learn the details and memorize definitions, but you need to understand the economic argument and reasoning. For example, you should know what Figure 3.1 represents, but not memorize the evolution of each country.

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