Lecture

Thinking like an economist

BS1551 Microeconomics
Dr Iain Long
longiw@cardiff.ac.uk | @iainlongecon
 Welcome

Welcome to our first lecture!

I propose the following approach:

1. Discuss how the module is assessed.
2. Explore Learning Central.
3. Common ‘mistakes’ when thinking about costs
and benefits.
4. Graphing continuous choices.
 About me
Background:
• From rural Northumberland.
• First job was as a lifeguard at my local pool.
• A-Level teacher inspired me to study economics.
• Studied at the LSE for 10 years before Cardiff.

Now:
• Senior Lecturer in Economics.
• Research focuses on crime, informality and law enforcement.
• Dad, runner and drinker of too much coffee.
 Announcements

Tutorials start next week:

• All timetabled for Thursdays.

Office hours:
• Fridays, 09:30-11:30.

• Room S24, third floor, Aberconway Building.

• Drop by or book time in my diary via the QR

code ➡
 Independent learning
activities

Let’s talk through this week’s

module map.

Adran Economeg | Economics Section

BS1551 Microeconomics

Module assessment
 Intended learning
outcomes
By the end of this module, you should be able to:
1. Describe the issues with which microeconomics is concerned.
2. Discuss the tools employed by microeconomists and their uses.
3. Analyse a range of social phenomena using the tools of microeconomics.
4. Explain the results of an economic analysis by combining intuitive argument,
graphical representation and mathematics.
5. Propose appropriate government intervention in response to well-defined
economic problems.
6. Evaluate the validity of an economic analysis with particular reference to its
underlying assumptions.
To achieve these you will
need to show (most of)…
 Summative assessment

Summative assessment is designed to

assess whether you have achieved the
module intended learning outcomes.

Two elements:
• Group video project (20%).
• Final exam (80%).
 Group video project

In groups, you will be asked to

produce a three-minute video that:
• Addresses a real-world economic problem.
• Targets at a particular audience.

You will have time during tutorials to

work on it, but will also need schedule
meetings to collaborate.
 Classification
Criterion Weight
First (70% or higher) 2:1 (60%-69%) 2:2 (50%-59%) Third (40%-49%) Fail (39% or lower)
Mixture of appropriate Mixture of appropriate
Appropriate Appropriate
and inappropriate and inappropriate
Application of AND BUT
20% OR AND Inappropriate
economic theory No errors or gaps in Errors or gaps in
Errors and gaps in Errors or gaps in
reasoning reasoning
reasoning reasoning
Clear, intuitive and Clear, intuitive and Coherent and Generally coherent and Confused
economics-driven economics-driven economics-driven economics-driven OR
Strength of
20% AND BUT BUT BUT Opinion-driven
arguments
No tangential Contains tangential focused on mechanics focused on mechanics OR
arguments arguments or lacking detail and lacking detail Completely disjointed
Based on the results of Based on the results of Stretch the credibility of
the analysis the analysis the analysis
Mixture of appropriate
Recommendations 20% AND BUT BUT Inappropriate
and inappropriate
Caveated by limitations Little evidence of critical Consistent with
of the analysis evaluation arguments
Appropriate level of Appropriate level of Inappropriate level of Inappropriate level of
Appropriateness of detail and technicality detail and technicality detail and technicality detail and technicality
presentation for 25% AND BUT BUT AND Confusing for audience
audience Well-paced and clear Poorly-paced or poor Well-paced and clear Poorly-paced or poor
structure structure structure structure

Contribution to Groups will be asked to agree what percentage each group member contributed to the project. They will then receive a percentage
group 15% score for this criterion based upon the following formula:
[Peer-assessed] 15 × Number of group members × Individual contribution (%)
 Final exam

Two hours and two sections:

• Section A: Eight multiple choice questions (50%).
• Section B: Two short-answer essay on a real-world
problems from a choice of four (25% each).

Exam questions are selected from the

module material, and there is no
predictable pattern for their selection.
• I always write new questions.
 Classification
Criterion Weight
First (70% or higher) 2:1 (60%-69%) 2:2 (50%-59%) Third (40%-49%) Fail (39% or lower)
Mixture of appropriate Mixture of appropriate
Appropriate Appropriate
Application of and inappropriate and inappropriate
AND BUT
economic 20% OR AND Inappropriate
No errors or gaps in Errors or gaps in
theory Errors and gaps in Errors or gaps in
reasoning reasoning
reasoning reasoning
Application of Complete, correct Complete, correct Almost correct Some correct elements
mathematics AND BUT BUT BUT
20% Completely incorrect
and/or Well incorporated into Limited incorporation into Incomplete or with minor Incomplete and with
diagrams written answer written answer errors minor errors
Clear, intuitive and Coherent and economics- Generally coherent and Confused
Clear, intuitive and
economics-driven driven economics-driven OR
Strength of economics-driven
20% BUT BUT BUT Opinion-driven
arguments AND
Contains tangential focused on mechanics or focused on mechanics OR
No tangential arguments
arguments lacking detail and lacking detail Completely disjointed
Few correct elements
All elements correct
All elements correct Most elements correct
AND OR
Derived answer 20% AND AND Incorrect
Reasoning completely
Reasoning mostly correct Reasoning mostly correct Most elements correct for
correct
the wrong reasons
Appropriate, specific Appropriate, specific Appropriate, specific
Critical assumptions highlighted assumptions highlighted assumptions highlighted
Inappropriate or generic, No attempt to consider
evaluation of 20% AND AND BUT
assumptions evaluated. assumptions
assumptions Validity and implications Validity or implications Limited or no critical
discussed discussed evaluation
 Learning Central

Let’s explore Learning Central:

https://learningcentral.cf.ac.uk/
 Thoughts?

Please share your thoughts,

comments and questions.
BS1551 Microeconomics

Common ‘mistakes’ when choosing

 'Mistake’ 1: Ignoring
implicit costs

Recall that an individual takes action x:

NG(x) = B(x) – C(x) > 0.

Define the opportunity cost to be the net

gain of the next best alternative.
• Part of the total cost of x is giving up NG(y).
• Part of the total cost of y is giving up NG(x).
 ‘Mistake’ 2: Including
sunk costs

You can’t recover costs that you have

already paid:
• These are sunk costs.

If you have already paid for something

when you make a decision, then you
should ignore it.
 Discrete choice:
Going to university

Think about your decision to come to

university:
• What are the costs and benefits?
• Are they explicit or implicit?
• Now that you are here, how have the costs and
benefits of staying changed?
 ‘Mistake’ 3: Measuring costs
and benefits as proportions

Costs and benefits should always be measured in monetary

terms.
• If a takeaway had free collection and a £5 delivery charge, would you pay for delivery
of your £10 order?
• If a Michelin-starred takeaway had free collection and a £5 delivery charge, would
you pay for delivery of your £200 order?
 Discrete choice:
Numerical example

Following its recent ‘fiscal Policy Explicit Cost Benefit

event,’ the UK government is Do nothing £100bn £110bn
trying to decide between Hold election £80bn £95bn
three different policies to Reverse
£90bn £120bn
reassure the markets. changes
 Questions

Let’s think about the UK government’s

choice:
• What should the government decide?
• What is the opportunity cost of reversing the
changes?
• What is the opportunity cost of holding an
election?
• What is the opportunity cost of doing nothing?
 Emailed question

If costs equal benefits, what should we do?

 Thoughts?

Please share your thoughts,

comments and questions.
BS1551 Microeconomics

Continuous choices
 Continuous choice:
Studying

Think about how much you study:

• What units should we use to describe the margin?
• What are the marginal benefits?
• What are the marginal costs?
 Graphical representation
€
B(t)

NG(t0)
C(t)
B(t0)

C(t0)

t0 t
 Linking total and
marginal graphically
€ MB(t0) €
Gradient = 1 = MB(t0)
B(t)

MB(t0)
1
C(t)
MC(t)
MC(t0)
MC(t0)
MB(t)

t0- 1 t0 t t
 The marginalist approach
€ €

B(t)

Biggest
NMG(1) gap
C(t)
MC(t)

MB(t)
1 …… t*- 1 t* t t* t
 ‘Mistake’ 4: Muddling up
average and marginal

People occasionally compare the average cost and benefit,

instead of the marginal cost and benefit:
B(t) C(t)
AB t = t AC t = t

Will this lead to the same decision?

 Linking total and average
graphically
€ B(t0) €
Gradient = t = AB(t0)
0
B(t)

Different
quantity

C(t)
B(t0) MC(t) = AC(t)
AC(t0) AB(t)
C(t0) MB(t)

t0 t0 t t* t
 Thoughts?

Please share your thoughts,

comments and questions.
 Need support?

Support is always available:

🧑🏫 Speak to me now in the foyer.
💻 Email me (longiw@cardiff.ac.uk).
🗄 Drop by my office hours or book time in
my diary via the QR code ➡