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The document provides an overview of key microeconomics concepts including:
- Models that simplify economic activities to describe market features.
- Production possibility frontiers that show combinations of goods an economy can produce.
- Basic principles like scarcity, opportunity costs, and incentives.
- Supply and demand models that determine equilibrium price where quantity demanded equals quantity supplied.
The document provides an overview of key microeconomics concepts including:
- Models that simplify economic activities to describe market features.
- Production possibility frontiers that show combinations of goods an economy can produce.
- Basic principles like scarcity, opportunity costs, and incentives.
- Supply and demand models that determine equilibrium price where quantity demanded equals quantity supplied.
The document provides an overview of key microeconomics concepts including:
- Models that simplify economic activities to describe market features.
- Production possibility frontiers that show combinations of goods an economy can produce.
- Basic principles like scarcity, opportunity costs, and incentives.
- Supply and demand models that determine equilibrium price where quantity demanded equals quantity supplied.
Microeconomi cs Reference Nicholson and Snyder Intermediate Microeconomics and it's Applications Microeconomics
● The study of the economic choices individuals
and firms make and of how these choices create markets. ● It stresses that there are not enough basic resources to satisfy everything people want. (This leads to choice) ● Microeconomics is the study of all of these choices and of how well the resulting market outcomes meet basic human needs. Models
● All economists build simplified models of
various activities that they wish to study. ● These simplified models are used to describe the basic features in the market in general. ● Models are simple theoretical descriptions that capture essentials of how the economy works. Production Possibility Frontier
● A graph showing all possible combinations of
goods that can be produced with a fixed amount of resources. ● In other words, this graph shows the various amounts of two goods that an economy can produce during some give time period. Basic Principles
● Resources are scarce
● Scarcity involves opportunity cost ● Opportunity costs are increasing ● Incentives matter ● Inefficiency involves real costs ● Whether markets work well is important Opportunity cost
● The cost of a good as measured by the
alternative uses that are foregone by producing it Increasing opportunity cost
● Increasing the output of one good will usually
involve increasing opportunity costs as diminishing returns sets in ● The opportunity cost of an economic action is not constant but varies with the circumstances Incentives
● When people make economic decisions, they
will consider the opportunity cost ● Only when the extra (marginal) benefits from an action exceed marginal (extra) opportunity costs will they take the action being considered Inefficiency
● The economy will producing inside the
production possibility frontier ● There are real losses which involves real opportunity costs ● Avoiding such costs will make people better off How markets work
● Most economic transactions occur through
markets ● When markets perform poorly, they can impose real costs on the economy – that is, they can cause the economy to operate inside it's PPF Supply-demand model
● A model describing how a good's price is
determined by the behaviour of the individuals who buy the good and of the firms that sell it ● Marshall showed how the forces of demand and supply simultaneously determine price Demand
● Shows the amount of the good people want to
buy at each price ● Negative slope shows that people pay less and less for the last unit purchased (they will buy more only at a lower price) ● In other words, downward slope of the demand curve reflects decreasing marginal value Supply
● Shows the increasing cost of making one
more unit of the good as the total amount produced increases ● The upward slope of the supply curve reflects increasing marginal costs Equilibrium price
● The price at which the quantity demanded by
buyers of a good is equal to the quantity supplied by sellers of the good ● The quantity that people are want to purchase is equal to the quantity that suppliers are willing to produce Positive – Normative Distinction
● Distinction between theories that seek to
explain the world as it is and theories postulate the way the world should be ● Primarily we take positive approach by using economic models to explain real-world events