This week we'll explore the foundations of microeconomics and how economists use economic principles to understand everyday decisions. We'll learn about scarcity, trade-offs, and opportunity cost, and explore Mankiw's Ten Principles of Economics. We'll also examine how economists think using models and data, including the circular flow diagram and the production possibilities frontier (PPF).

Putting the Skills into Action:

• Identify the opportunity cost of a decision by naming the next-best alternative given up (Ex: an hour spent studying could have been spent working, sleeping, or with family)
• Distinguish positive statements, which describe testable facts, from normative statements, which express opinions or values, when evaluating an economic argument
• Use the production possibilities frontier (PPF) to visualize how scarcity forces trade-offs between efficient (on the curve), inefficient (inside the curve), and unattainable (outside the curve) outcomes

This week we'll explore how opportunity cost helps determine comparative advantage and how specialization and trade can benefit both parties. We'll learn the difference between absolute advantage and comparative advantage, use the production possibilities frontier (PPF) to visualize trade-offs, and see how opportunity costs influence decisions about what to produce and trade. We'll also explore how to determine a range of terms of trade that can benefit both parties.

Putting the Skills into Action:

• Calculate the opportunity cost of each good for each producer, and use those costs, not raw productivity, to determine comparative advantage
• Apply the rule "specialize in the good where you give up the least" to decide who should produce what, even when one party has the absolute advantage in everything
• Identify a workable terms-of-trade range by comparing both parties' opportunity costs; a fair-trade price falls between the two

This week we'll explore how demand and supply interact to determine market equilibrium. We'll learn about the law of demand and the law of supply, distinguish between movements along a curve and shifts of the curve, and examine what happens when markets experience a surplus or shortage. We'll also explore elasticity and learn how to calculate price elasticity of demand using the midpoint method.

Putting the Skills into Action:

• Distinguish a movement along the demand or supply curve, caused by a change in the good's own price, from a shift of the entire curve, caused by a non-price factor such as income, related goods, or expectations
• Identify equilibrium price and quantity as the point where the demand and supply curves intersect, and explain how surpluses and shortages create pressure that pushes price back toward that point
• Calculate price elasticity of demand using the midpoint method, and use its absolute value to classify demand as elastic (greater than 1) or inelastic (less than 1)

This week we'll explore how government policies affect buyers and sellers in a market. We'll examine price ceilings and price floors, explore how taxes are shared between buyers and sellers, and learn how elasticity affects who bears more of a tax. We'll also discuss positive and negative externalities and ways governments can address them. Finally, we'll explore consumer surplus and producer surplus and learn how they measure the benefits buyers and sellers receive from market transactions.

Putting the Skills into Action:

• Determine whether a price ceiling or price floor is binding by comparing it to the equilibrium price, and predict whether the result is a shortage or a surplus
• Analyze tax incidence by remembering that the side of the market that is less-elastic bears more of the tax burden, regardless of who is legally required to pay it
• Calculate consumer surplus (willingness to pay minus price) and producer surplus (price minus cost) to identify the efficient level of transactions in a market

Efficiency Happens Where Willingness to Pay Meets Cost—That's How Total Surplus Is Maximized!

This week we'll explore how firms measure the costs of production and use those costs to make decisions in competitive markets. We'll distinguish between explicit and implicit costs, compare accounting profit with economic profit, and learn about fixed cost, variable cost, average cost, and marginal cost. We'll also examine what makes a market competitive and explore how firms use the profit-maximizing rule (MR = MC) to determine how much to produce, including when a firm should shut down in the short run.

Putting the Skills into Action:

• Calculate total cost as fixed cost, plus variable cost, and remember that economic cost includes both explicit costs (money paid out) and implicit costs (opportunity costs, like the owner's foregone income)
• Use marginal cost, not average cost, to decide whether producing one more unit is worthwhile; marginal cost pulls average total cost in its direction
• Apply the profit-maximizing rule for a competitive firm: produce where MR = MC, and shut down temporarily if price falls below minimum average variable cost

This week we'll explore market structures where firms have some control over price. We'll learn what creates a monopoly, including barriers to entry such as key resources, government protection, and economies of scale. We'll also examine how monopolies maximize profit by producing where marginal revenue equals marginal cost and using the demand curve to determine price. Finally, we'll compare monopoly with monopolistic competition, where many firms sell differentiated products, and explore how product differentiation and advertising allow firms to compete beyond price.

Putting the Skills into Action:

• Identify the barrier to entry (key resource, government protection, or economies of scale) that allows a firm to remain the only seller in its market
• Apply the monopoly profit-maximizing rule: find the quantity where MR = MC, then use the demand curve to find the price consumers will pay; remember    P > MR = MC
• Recognize that monopolistic competition combines many sellers and free entry/exit (like perfect competition) with product differentiation and some market power (like monopoly), driving long-run economic profit toward zero
   

This week we'll explore markets with only a few sellers and how firms make decisions when they are affected by the actions of their rivals. We'll examine oligopolies and duopolies, explore how cartels attempt to restrict output and act like a monopoly, and learn why cooperation can be difficult to sustain. We'll also use game theory and the prisoners' dilemma to understand how individually rational choices can lead to outcomes that are worse for everyone. Finally, we'll explore how antitrust laws encourage competition and discourage firms from colluding.

Putting the Skills into Action:

• Recognize that in an oligopoly, firms are interdependent—one firm's price or output decision affects the profits of its rivals
• Identify a dominant strategy in a payoff matrix (the best choice regardless of what the other player does), and understand why the prisoners' dilemma can lead both players to a worse outcome than cooperation
• Explain why cartels are hard to maintain: each firm can raise its own profit by increasing output, but if all firms do so, market price falls and combined profit drops—this is why antitrust laws like the Sherman Act and Clayton Act discourage collusion

Individual Self-Interest Can Leave Everyone Worse Off—That's the Prisoners' Dilemma!

This week we'll explore how economic thinking can be applied to decisions beyond traditional markets. We'll examine political economy, including the Condorcet paradox and median voter theorem, to understand how voting rules can shape group decisions. We'll then explore behavioral economics through concepts such as bounded rationality, fairness, and present bias, and see how real-world decisions can differ from the traditional rational model. We'll close by reviewing the final project and how to apply microeconomics concepts to a real company.

Putting the Skills into Action:

• Explain why majority voting with three or more choices can create a Condorcet paradox (inconsistent group preferences), and why the median voter's preference is often difficult to defeat under majority rule
• Identify common behavioral patterns, like overconfidence, undue salience, confirmation bias, and present bias, that cause real decisions to depart from the traditional rational-choice model
• Before submitting the final project, check your report against the rubric, support your analysis with specific evidence and APA citations, and acknowledge any generative AI use per course guidelines