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Essay on Micro-Economics
There is no question individuals (households) play a key role in the economic system - they provide the workers in the labor market, the consumers in the output market, and the borrowers and lenders in the capital market. In this unit we are going to look more carefully at households to get a better handle on the demographic breakdown of the population - a sort of statistical profile of the world's and nation's people. If you ever intend to sell something, and most of you will be in this position, you will want to read this section carefully. As you read the newspaper or watch the news you will note how often discussions center around generations - the baby boomers, generation X, the elderly - or around the racial, ethnic, or regional patterns of population growth. We will start with a brief description of some of the basic trends.
But what makes individuals do what they do? To answer this question economists have developed an elaborate theory of individual choice - an analysis that provides a framework for explaining households' decisions regarding spending, working, and saving. As it turns out, there are some choices that seem to defy the simple model and we will explore some of those in a later section on extensions of the model (Bernstein, Brocht, Spade-Aguilar).
The unit will close with a discussion of elasticity. To move from qualitative relationships - an increase in price will reduce demand - to quantitative relationships - a 4 percent increase in income will increase demand by 6 percent - requires the introduction of a new concept – elasticity.
Model of Choice: An Introduction
Economists traditionally start with the premise that people's choices are the end result of a careful weighing of costs and benefits, what we would call rational behavior. In this sense people are viewed as calculators.....
