Macroeconomics: an Introduction Jes. Teaching the Basic Concepts Video Produced by. Microeconomic Concepts Microeconomics is the study of how markets work. Economics Basics Tutorial. Scarcity Scarcity, a concept we already implicitly discussed in the introduction to this. Teaching- Learning Material. Same basic concepts like. Microeconomics and also how both are important for understanding Individual Behaviour. Are you looking for documents about Basic microeconomics? StuDocu has everything you need! Summaries, lecture notes, past exams and much more! Microeconomics - Wikipedia, the free encyclopedia. Microeconomics (from Greek prefix mikro- meaning . Microeconomics also analyzes market failure, where markets fail to produce efficient results, and describes the theoretical conditions needed for perfect competition. Assumptions and definitions. ECON101: Principles of Microeconomics; Course Introduction. The purpose of this course is to provide you with a basic understanding of the principles of microeconomics. Introduction & Basic Concepts I Nature of economics. Lecture notes for Macroeconomics I, 2004 Per Krusell Please do NOT distribute without permission! Comments and suggestions are welcome. To economists, rationality means an individual possesses stable preferences that are both complete and transitive. The technical assumption that preference relations are continuous is needed to ensure the existence of a utility function. Although microeconomic theory can continue without this assumption, it would make comparative statics impossible since there is no guarantee that the resulting utility function would be differentiable. Microeconomic theory progresses by defining a competitive budget set which is a subset of the consumption set. It is at this point that economists make the technical assumption that preferences are locally non- satiated. Without the assumption of LNS (local non- satiation) there is no guarantee that a rational individual would maximize utility. With the necessary tools and assumptions in place the utility maximization problem (UMP) is developed. The utility maximization problem is the heart of consumer theory. The utility maximization problem attempts to explain the action axiom by imposing rationality axioms on consumer preferences and then mathematically modeling and analyzing the consequences. The utility maximization problem serves not only as the mathematical foundation of consumer theory but as a metaphysical explanation of it as well. That is, the utility maximization problem is used by economists to not only explain what or how individuals make choices but why individuals make choices as well. The utility maximization problem is a constrained optimization problem in which an individual seeks to maximize utility subject to a budget constraint. Economists use the extreme value theorem to guarantee that a solution to the utility maximization problem exists. That is, since the budget constraint is both bounded and closed, a solution to the utility maximization problem exists. Economists call the solution to the utility maximization problem a Walrasian demand function or correspondence. The utility maximization problem has so far been developed by taking consumer tastes (i. However, an alternative way to develop microeconomic theory is by taking consumer choice as the primitive. This model of microeconomic theory is referred to as Revealed preference theory. The graph depicts a right- shift in demand from D1 to D2 along with the consequent increase in price and quantity required to reach a new market- clearing equilibrium point on the supply curve (S). The theory of supply and demand usually assumes that markets are perfectly competitive. This implies that there are many buyers and sellers in the market and none of them have the capacity to significantly influence prices of goods and services. In many real- life transactions, the assumption fails because some individual buyers or sellers have the ability to influence prices. Quite often, a sophisticated analysis is required to understand the demand- supply equation of a good model. However, the theory works well in situations meeting these assumptions. Mainstream economics does not assume a priori that markets are preferable to other forms of social organization. In fact, much analysis is devoted to cases where market failures lead to resource allocation that is suboptimal and creates deadweight loss. A classic example of suboptimal resource allocation is that of a public good. In such cases, economists may attempt to find policies that avoid waste, either directly by government control, indirectly by regulation that induces market participants to act in a manner consistent with optimal welfare, or by creating . This can diverge from the Utilitarian goal of maximizing utility because it does not consider the distribution of goods between people. Market failure in positive economics (microeconomics) is limited in implications without mixing the belief of the economist and their theory. The demand for various commodities by individuals is generally thought of as the outcome of a utility- maximizing process, with each individual trying to maximize their own utility under a budget constraint and a given consumption set. Microeconomic topics. It concludes that in a perfectly competitive market with no externalities, per unit taxes, or price controls, the unit price for a particular good is the price at which the quantity demanded by consumers equals the quantity supplied by producers. This price results in a stable economic equilibrium. Measurement of elasticities. Elasticity can be quantified as the ratio of the percentage change in one variable to the percentage change in another variable, when the later variable has a causal influence on the former. It is a tool for measuring the responsiveness of a variable, or of the function that determines it, to changes in causative variables in unitless ways. Frequently used elasticities include price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of intertemporal substitution. Consumer demand theory. The link between personal preferences, consumption and the demand curve is one of the most closely studied relations in economics. It is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility subject to consumer budget constraints. Theory of production. Production uses resources to create a good or service that is suitable for use, gift- giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing, shipping, and packaging. Some economists define production broadly as all economic activity other than consumption. They see every commercial activity other than the final purchase as some form of production. Costs of production. The cost can comprise any of the factors of production: labour, capital, land. Technology can be viewed either as a form of fixed capital (ex: plant) or circulating capital (ex: intermediate goods). Perfect competition. A good example would be that of digital marketplaces, such as e. Bay, on which many different sellers sell similar products to many different buyers. Monopoly. Oligopolies can create the incentive for firms to engage in collusion and form cartels that reduce competition leading to higher prices for consumers and less overall market output. Different forms of markets is a feature of capitalism and advocates of socialism often criticize markets and aim to substitute markets with economic planning to varying degrees. Competition is the regulatory mechanism of the market system. Monopolistic competition, also called competitive market, where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products. Oligopoly, in which a market is run by a small number of firms that together control the majority of the market share. Duopoly, a special case of an oligopoly with two firms. Game theory tends to govern duopoly and oligopoly behavior. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. Perfect competition, a theoretical market structure that features no barriers to entry, an unlimited number of producers and consumers, and a perfectly elastic demand curve. Examples of markets include but are not limited to: commodity markets, insurance markets, bond markets, energy markets, flea markets, debt markets, stock markets, online auctions, media exchange markets, real estate market. Game theory. Applications include a wide array of economic phenomena and approaches, such as auctions, bargaining, mergers & acquisitions pricing, fair division, duopolies, oligopolies, social network formation, agent- based computational economics, general equilibrium, mechanism design,and voting systems, and across such broad areas as experimental economics, behavioral economics, information economics, industrial organization, and political economy. Labour economics. Labour markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers), the demands of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income. In economics, labour is a measure of the work done by human beings. It is conventionally contrasted with such other factors of production as land and capital. There are theories which have developed a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also counter posing macro- economic system theories that think human capital is a contradiction in terms. Welfare economics. Accordingly, individuals, with associated economic activities, are the basic units for aggregating to social welfare, whether of a group, a community, or a society, and there is no . Information has special characteristics. It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions. These special characteristics (as compared with other types of goods) complicate many standard economic theories. Although opportunity cost can be hard to quantify, the effect of opportunity cost is universal and very real on the individual level. In fact, this principle applies to all decisions, not just economic ones. Opportunity cost is one way to measure the cost of something. Rather than merely identifying and adding the costs of a project, one may also identify the next best alternative way to spend the same amount of money. The forgone profit of this next best alternative is the opportunity cost of the original choice.
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