Microeconomic Theory

1755 words 8 pages
Running head: Module 1 Homework

Module 1 Homework
Michael J Feller
Allied American University

Author Note This paper was prepared for ECN 150: Introduction to Microeconomics, Module 1 Homework taught by Dr. Dani Babb.


Directions: Please draft a three page long document in APA format in which you address the questions below. You must cite at least three scholarly sources within the context of your work and cite your references according to APA style. Please utilize LIRN to help you get started with your search. You may visit the Academic Resource Center for a guide on how to utilize LIRN successfully.

1. Describe and identify microeconomic theory and contrast it to macroeconomic
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Rational people will compare costs to benefits to make a decision. They will respond when the cost to benefit ratio changes. An example would be a fuel tax. With higher prices, people are enticed to drive more fuel efficient cars. Unfortunately, this affects the consumer in more than one way. The higher fuel tax creates higher gas prices. The trucking industry feels this hit, and in response, raises their rates to transport goods. This causes the merchant to raise prices, and we, as the consumer, must pay higher prices for goods.
An example of when I faced a trade-off, considered opportunity costs and evaluated the options by comparing the marginal benefits and the marginal costs associated with that decision would be with the higher fuel tax, gas prices were on the rise. I was driving a four wheel drive truck that gets about 13-15 MPG. I have bad credit due to a divorce. I needed a smaller car that gets better gas mileage. I took out a high interest loan to pay for a smaller car because the cost of the loan, insurance, and gas was lower than just the cost of gas in the truck. Even though I am paying an astronomical interest rate, the benefit outweighed the costs in this situation. I was offered a different vehicle that came with a lower interest rate, but the rate was still high, and the other vehicle cost about three times as much. While the newer vehicle may have been a better choice, the cost outweighed the benefit, so my decision was to


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