Introduction to Microeconomics: Analytical Building Blocks for Business

DESCRIPTION:
How will microeconomics affect your company's bottom line?

This practical freshman or sophomore level course focuses on the role of economics in business planning, but also examines their impact on finance, legal and public policy.

Interviews with executives from Petco and other large concerns, along with behind-the-scenes tours of major companies, reveal how microeconomics drives profits, legal positions, and public policy statements.

Robert Connolly, professor at the Business School of the University of North Carolina at Chapel Hill, offers a comprehensive overview covering topics such as:

• Consumer purchasing habits
  
• How buyers and sellers interact in the marketplace
  
• Effects of new technology on the economy
  
• Differences between competitive and monopolized markets
  
• How market failures can yield unexpected results
  
• International trade, tariffs and quotas

LESSONS:

Scarcity and Resource Allocation
Scarcity and Resource Allocation explains the role of opportunity cost and incentives in the allocation of resources and making business decisions. It defines comparative advantage and explores the production possibilities frontier, giving special attention to the law of diminishing product. It also examines the impact of non-market institutions, such as the government and the family, on resource allocation. Externalities (situations where resource allocations do not reflect the appropriate opportunity costs and incentives) are explored. Finally, the program looks at resource allocation under different industry structures, specifically perfect competition, monopoly, and monopolistic competition. Throughout the video, extensive interviews with the CEO and the Director of Manufacturing of Rickenbacker Guitars, along with footage of the company's manufacturing process, illustrate how the problem of scarcity (including scarcity of time) affects decision-making.

Market Analysis & Demand
Program three examines markets and the Law of Demand in depth. The lesson begins by distinguishing between output, input, labor, capital, and black markets, and illustrates their differences using several examples including a produce market, the metals market, the stock market, and a police department. It goes on to discuss the determinants of demand and explain how to apply formal graphical analysis to changes in the demand side of the market model. Throughout the program, interviews with Hollytron electronics' VP of Merchandising demonstrate how businesses use the Law of Demand and how they react to changes in its determinants.

Market Analysis & Supply
This program focuses on the supply side of the market, explaining the role of the upward-sloping supply curve and discussing the determinants of market supply. It explores production costs and gives special emphasis to the concept of productivity and the importance of strong labor-management relations. Also addressed is the impact of a change in the number of firms in an industry (i.e., entry and exit). These concepts are demonstrated graphically using the market model. The lesson incorporates video clips of various manufacturing processes from the copper industry, the airline industry, and the Ford Motor Company to illustrate these points. Finally, in-depth interviews with the CEO, the Manufacturing Manager, and the General Manager of Packaged Foods of the Wolfgang Puck Food Company and the Chairman of Southwest Airlines further demonstrate how these concepts are applied in the business world.

Analysis
Equilibrium Analysis shows how to unite the supply and demand curves in our market model to determine equilibrium price and quantity. It explains the conditions for market equilibrium and examines why a market that is out of equilibrium will automatically move toward it. Then it demonstrates how to use this unified market model to analyze changes in supply and demand. The lesson defines income, price, and cross-price elasticities and explores the usefulness of these concepts in business decision-making. A more extensive interview with Hollytron's VP of Merchandising gives practical exposure to the problem of maintaining equilibrium in business. Other concepts are illustrated with coverage of the car market and of market researchers at work.

Analyzing Household Choices
Program six introduces the concepts of utility and preference to begin the study of household choices. It graphically analyzes the household's budget constraint and shows the impact of changes in income and prices on that constraint. The lesson explains substitution and income effects, and uses them to explore tradeoffs between labor and leisure and between saving and consumption. Finally, it defines the interest rate as the opportunity cost of current consumption and shows its impact on household choices. Throughout the video, candid documentary footage of one American family illustrates the practical importance of these concepts.

Analyzing Business Choices
Analyzing Business Choices builds a careful model of firms' production costs. It starts by defining cost, revenue, and profit in an economically useful way. It then defines a production function based on the law of diminishing marginal product and uses this function to build definitions of and relationships between the concepts of marginal product, marginal cost, average variable cost and average total cost. The lesson emphasizes the impact of capital levels, labor cost, and improved technology on the marginal cost curve. This technically demanding analysis is illuminated by interviews with the CEO and one of the general managers of Louise's Trattoria, a large Southern California restaurant chain.

Firm Profit Maximization and the Market
This program introduces marginal revenue and unites it with marginal cost to determine the firm's optimal (i.e., profit-maximizing) output. It shows how this output is related to market-wide conditions and how it can be affected by changes in the firm's cost structure. The program then shows how to graphically model the firm's economic profit or loss, and explains how this outcome sends a signal to investors to enter or leave an industry; the impact of this decision is linked back to the industry supply curve and market price. Interviews with executives at the Wolfgang Puck Food Company explore the firm's decisions to enter and exit various markets. In addition, an overview of the trucking industry illustrates the interdependent nature of profits and entry decisions.

Long-Run Analysis of Firm and Market
Program ten expands the analysis of firms and markets to cover the long run in which a firm has the time needed to enter or exit an industry or alter its scale of operations. A documentary story on the automobile industry illustrates the long-run choice between different combinations of capital and labor. Then the lesson shows how to model this time frame formally with graphical analysis. Specifically, it shows the impact of changes in scale on short-run cost curves, and then uses this to determine the long-run effects. Coverage of electrical utilities brings the impact of changes in scale to life. Next the lesson explores the differences between increasing, decreasing, and constant-cost industries. It finishes with an introduction to human capital and the concept of the learning curve. Interviews with the president of The Orange County Register and an overview of newspaper production processes are used to examine how businesses must make long-run decisions regarding scale.

Analyzing Monopoly
Analyzing Monopoly applies graphical analysis to the problem of monopoly. First, it defines the marginal revenue curve under monopoly and uses it to explore profit-maximizing behavior. It analyzes pricing and economic profits under monopoly and shows the impact of changes in cost or demand on the firm's actions. The lesson compares monopoly to monopolistic competition and contrasts the profit outcomes for each industry structure. Finally, it introduces the concept of consumer surplus and uses it to show the social costs of monopoly. This analysis is supplemented by interviews with the VP for Strategic Planning of Edison International and the VP for Consumer Solutions of Southern California Edison, along with video footage of Edison's operations.

Analyzing Market Failure
Program 11 introduces the concept of market failure, where the market outcome does not reflect an optimal allocation of resources. Externalities are explained and the lesson uses the concept of marginal external cost to graphically analyze the sources and effects of market failure. It explores how property rights relate to these problems and also studies various possible solutions, comparing tax policy with other, more direct regulatory responses. It closes by examining information-related sources of market failure, such as adverse selection and moral hazard, and considers ways of addressing these problems. Two documentary stories are included, providing insight from the owners of Carriage Trade Dry Cleaners and Cleaner By Nature, who offer different responses to the issue of toxic cleaning solvents. The lesson also presents an interview with a regulator at the Southern California Air Quality Management District to help explain these concepts.

International Economic Analysis
This final video program provides a framework for analyzing international trade. First, it examines the impact of resource endowments on trade patterns. Then it explores comparative advantage and relates this concept to the gains that are possible from trade, illustrating the outcome with a concrete, numerical example. The lesson graphically analyzes the effect of import quotas on the consumer and shows how these quotas can have an ultimate impact on resource allocation that extends far beyond the immediate industry. It illustrates the lecture material with stories on the sugar industry and Norway's aluminum producers. It also includes interviews with both Petco's Chairman and its Senior VP for Merchandising and Distribution to illustrate the benefits and pitfalls of relying on foreign suppliers.