COM 501 – BASIC MICROECONOMICS COLLEGE OF COMMERCE AND BUSINESS ADMISNITRATION| AY 2023-2024

CONCEPT 2-4 | RESOURCE ALLOCATION,

MACRO AND MICROECONOMICS, TRADEOFFS
1ST SEMESTER | FIRST TERM

OUTLINE BASIC ECONOMIC DECISIONS

CONCEPT 2- RESOURCE ALLOCATION
I. BASIC ECONOMIC DECISIONS WHAT TO PRODUCE?
II. ECONOMIC SYSTEMS - Determined partly by Consumer preferences and
III. COMPARTIVE ECONOMIC
partly by government
CONCEPT 3- MACRO AND MICROECONOMICS
I. MICROECONOMICS HOW TO PRODUCE?
II. MACROECONOMICS
III. MACROECONOMICS VS MICROECONOMICS - Determined partly by producers seeking profits and
IV. THE SCIENTIFIC METHOD partly by government
A. OBSERVATION
HOW MUCH TO PRODUCE?
B. DEFINITION/ASSUMPTION
C. DEDUCTION/REASONING FOR WHOM TO PRODUCE?
D. EMPIRICAL AND STATISTICAL TESTING
V. ECONOMIC TOOLS - Determined partly by purchasing power and partly
VI. ECONOMETRICS by government preference
CONCEPT 4 - TRADE OFFS
I. HOW PEOPLE. MAKE DECISIONS ECONOMIC SYSTEMS
II. THE COST OF SOMETHING IS WHAT YOU GIVE - TRADITION
UO TO GET IT
III. EXPLICIT VS IMPLICIT COSTS - MARKET
IV. PRODUCTION POSSIBILITY CURVE
V. LAW OF INCREASING OPPORTUNITY COST - COMMAND
VI. RATIONAL PEOPLE THINK AT THE MARGIN COMPARATIVE ECONOMIC SYSTEMS
VII. POSITIVE ECONOMICS
VIII. NORMATIVE ECONOMICS - Examines the way alternative economic systems
function.

CONCEPT 2 – RESOURCE ALLOCATION - what are the advantages and disadvantages of

different systems?
What is the best way to convert the planned economies
of the former Soviet Union to a market system?

CONCEPT 3 – MACRO AND MICROECONOMIC

MICROECONOMICS
- A branch of mainstream economics that studies the
behavior of individuals and firms in making decisions
regarding the allocation the scare resources and the
interactions among these individuals and firms.
- Analyses the choices of individuals or households
(consumers) and firms in a variety of market situations.
Its aim is to explore how choices should be made, and

BSBA MM | BATCH 2027 I TRANSES BY RSSL_SS

COM 501 – BASIC MICROECONOMICS COLLEGE OF COMMERCE AND BUSINESS ADMISNITRATION| AY 2023-2024

to provide an explanation of choices should be made, DEFINITION/ASSUMPTION

and to provide and explanation of choices that are
made.
- Costs of economic decisions vis- á-vis benefits
(utility and profit)
MACROECONOMICS
- A branch of economics that deals with the
performance, structure, behavior, and decision -making
of an economy as a whole, or in the aggregate. This
includes regional, national, and national, and global
economies.
- Assembles the problems affecting the whole nation
or region instead of an individual or household.
Attention is on poverty, unemployment, inflation,
national income, and economic growth.
- To define is to make definite, unequivocal; to set
the parameters; to give direction to the study.
- Statement of the problem; defining the variable;
setting the scope and limitations of the scope and
limitations of the study.
-To assume is to lay down the context or backdrop
-Formulation of hypothesis/hypotheses
DEDUCTION/REASONING
-Logical Reasoning: Inductive and Deductive
- Errors of Reasoning: Error of Sweeping
Generalization; Error in composition; Error of Mere
Antecedent; Error that Appeals to Emotion

- Economic growth and economic growth - Mathematical Reasoning

MACROECONOMICS VS MICROECONOMICS EMPIRICAL AND STATISTICAL TESTING

Microeconomics is the study of the “individual trees” EMPIRICAL TESTING is the process of testing
in the forest of economic behavior. hypothesis through observation of reality.

Macroeconomics is the study of “forest” of economic
behavior as a whole.
MICROECONOMICS
Studies individuals
income
Analyzes demand and
supply of labor
Deals with households
and firms’ decisions
Studies individuals prices
Analyzes demand and
supply of goods
THE SCIENTIFIC METHOD
OBSERVATION
- Looking at point of interest
- Considering empirical and Ethical constraints
- Gathering of Data
MACROECONOMICS
Studies national income
Analyzes total
employment in the
economy
Deals with aggregate
decisions
Studies overall price level
Analyzes aggregate
demand and aggregate
supply
STATISTICAL TESTING: A statistical test provides a
mechanism for making quantitative decisions about a
process or processes. The intent is to determine
whether there is enough evidence to "reject" a
conjecture or hypothesis about the process.
QUALITATIVE AND QUALITATIVE ANALYSES:
Quantitative research deals with numbers and statistics,
while qualitative research deals with words and
meanings. Quantitative methods allow you to
systematically measure variables and test hypotheses.
Qualitative methods allow you to explore concepts and
experiences in greater detail.
ECONOMIC TOOLS
- LOGIC
- MATHEMATICS
- STATISTICS

BSBA MM | BATCH 2027 I TRANSES BY RSSL_SS

COM 501 – BASIC MICROECONOMICS
ECONOMETRICS
- Econometrics uses economic theory, mathematics,
and statistical inference to quantify economic
phenomena.
- The objective of econometrics is to convert
qualitative statements (such as “the relationship
between two or more variables is positive”) into
quantitative statements (such as “consumption
expenditure increases by 95 cents for every one
dollar increase in disposable income”). Econometrics
uses economic theory, mathematics, and statistical
inference to quantify economic phenomena.
CONCEPT 4 – TRADE OFFS
PEOPLE FACE TRADE OFFS – Principle 1 of N. Gregory
Mankiw’s Ten Principles of Economics
HOW PEOPLE. MAKE DECISIONS
- “There ain’t no such thing as a free lunch.”
- You can’t have your cake and eat it too.”
- To get one thing that we like, we usually have to
give up another thing that we like.
- Making decisions requires trading off one goal
against another.
- Tradeoff between efficiency and equality: Efficiency
means that the society is getting the maximum benefits
from its scarce resources. Equality means that those
benefits are distributed uniformly among society’s
members. If efficiency refers to the size of the economic
pie, and equality refers to how the pie is divided into
individual slices, then the pie gets smaller as it is
divided into more equal slices.
THE COST OF SOMETHING IS SOMETHING IS WHAT
- Because people face tradeoffs, making decisions
requires comparing the costs and benefits of alternative
causes of action. (Principle 2)
BSBA MM | BATCH 2027 I TRANSES BY RSSL_SS
COLLEGE OF COMMERCE AND BUSINESS ADMISNITRATION| AY 2023-2024
EXPLICIT VS IMPLICIT COSTS
- Some expenditures are not really costs because
they would have occurred anyway.
- Many costs do not involve financial expenditures
- Explicit costs are actual ”out-of-the-pocket” costs;
implicit costs are opportunity costs.
- Opportunity cost – whatever must be given up to
obtain some item. (The value of the best foregone
alternative.)
PRODUCTION POSSIBILITY CURVE
- Or production
possibility frontier
(PPF), or transformation
frontier.
- Shows the maximum combinations of the goods
that may be produced, given the constraint of inputs
- The PPF captures the trade off or opportunity cost
between the two outputs (guns and butter in the
illustration).
- The opportunity cost of good 1 is given by the
absolute value of the slope of the PPF, (run/rise)), and is
called the marginal rate of transformation, MRT.
LAW OF INCREASING OPPORTUNITY COST
- AN ECONOMIC PRINCIPLE THAT DESCRIBES HOW
OPPORTUNITY COSTS INCREASE AS RESOURCES ARE
APPLIED. (In other words, each time resources are
allocated, there is a cost of using them for one purpose
over another.)
- There are many different types of resources and
production processes, and for each decision made,
there are opportunity costs. And since these decisions
are repeated and refined, the law of increasing
opportunity costs applies each time production
increases by one additional unit (what is known as a
marginal cost).
COM 501 – BASIC MICROECONOMICS COLLEGE OF COMMERCE AND BUSINESS ADMISNITRATION| AY 2023-2024

RATIONAL PEOPLE THINK AT THE MARGIN

- Rational People: people who systematically and
purposefully do the best they can to achieve their
objectives.
- Marginal Change: a small incremental adjustment
to a plan of action.
- A RATIONAL DECISION MAKER TAKES AN ACTION IF
AND ONLY IF THE MARGINAL BENEFIT OF THE ACTION
EXCEEDS THE MARGINAL COST.

POSITIVE ECONOMICS
- The study of how the economy works.

NORMATIVE ECONOMICS
- The study of what should be.
- It is used to make judgments about the economy,
and prescribe solutions.

BSBA MM | BATCH 2027 I TRANSES BY RSSL_SS