Assessing Student Learning in the Principles of Microeconomics Course

The principles of microeconomics course will focus student learning on the following concept areas. One-half of the departmental final exam will test on this material.

Scarcity and choice address the problem of limited resources and the need to economize. There are not enough resources available to meet all the desires of all the people, making rationing in some form unavoidable. We are forced to make choices among competing objectives--an inescapable result of scarcity.

Opportunity cost recognizes that everyone must choose between alternatives. Time and resources used to satisfy one set of desires can not be used to satisfy another set. The cost of any decision or action is measured in term of the value placed on the opportunity foregone.

Comparativeadvantage explains how people benefit from voluntary exchange when production decisions are based on opportunity cost. Related Concepts: absolute advantage, benefits from trade.

Marginal analysis is the economic way of thinking about the optimal allocation of resources. Choices are seldom made on an all-or-nothing basis--they are made at "the margin." Decision makers weigh the tradeoffs, a little more of one thing and a little less of another. In this environment, consideration is given to the incremental benefits and incremental costs of a decision.

Self-interest is a strong motivator of economic decision makers. Driven by the power of self-interest, people are motivated to pursue efficiency in the production and consumption decisions they make. According to Adam Smith, the pursuit of self-interest, moderated by market competition, causes each individual to pursue a course of action that promotes the general welfare of society. Related concepts: role of economic incentives.

Markets and pricing serve as the most efficient way to allocate scarce resources. The market accomplishes its tasks through a system of prices: what Adam Smith called the "invisible hand." This invisible hand can allocate resources because everyone and everything has a price. Prices increase if more is desired or decrease if less is desired. Firms base their production decisions on relative prices and relative price movements. The price mechanism becomes a way to bring a firm's output decisions into balance with consumer desires--something that we refer to a equilibrium. Related concepts: equilibrium, profit maximization, economic profit, and market structure.

Supply and demand serve as the foundation to all economic analysis. Pricing and output decisions are based on the forces underlying these two economic concepts. Goods and services are allocated among competing uses by striking a balance (called an equilibrium) between the consumers' willingness to pay and the suppliers' willingness to provide--rationing via prices. Related concepts: price and income elasticity of demand and the importance of time in economic analysis.

Efficiency in economics measures how well resources are being used to promote social welfare. Inefficient outcomes waste resources, while the efficient use of scarce resources enhances social welfare. The fascinating aspect of competitive markets is how the more-or-less independent behavior on the part of thousands of decision makers serves to promote social welfare. Consumers attempt to make themselves better off by allocating limited budgets. Producers seek maximum profits by using cost-minimizing methods. Related concepts: productivity, optimization, consumer equilibrium, and law the of diminishing returns.

Competition forces the resource owners to use their resources to promote the highest possible satisfaction of society: consumers, producers, investors. If resource owners do this well, they will be rewarded. If they are inept or inefficient, they are penalized. Competition takes production out of the hands of the less competent and into the hands of the more efficient--constantly promoting more efficient methods of production.

Market failure arises when the free market fails to promote the efficient use of resources by either producing more or less than the optimal level of output. Sources of market failure include natural monopoly, externalities in production and consumption, and public goods. Other market imperfections such as incomplete information and immobile resources also contribute to this problem.

Christian ethics and their compatibility with the modern marketplace economics are explored. Issues such as poverty, income distribution, social justice, materialism, and community will be discussed from the Christian perspective.