Microeconomics 2023- Richard Welch

Macro refers to the level of economic activity and deals with level of prices, income and employment in the WHOLE economy. Micro refers to structure of economic activity and deals with small units like a business firm, an industry, or a single market.

Other things remaining the same- to get around not being able to conduct controlled experiments-ex.) wages, quality, prices

Using scarce resources to satisfy unlimited wants graphically.

The Wealth of Nations

Positive Economics is an approach to Econ. involving statements of facts. Ex.) "The U.S unemployment rate is 9.7 percent." Normative Economics is an approach to econ. giving interpretations to facts. Ex.- when formulating policies "The U.S unemployment rate should be lower.

A belief that what is true for the individual is also true for the whole group. In reality this is not true. EX.) arriving early to a game to buy tickets when everyone has that idea will not benefit you.

Economic growth - by the annual % of GDP
Full employment - by the unemployment rate
Price stability - by the CPI annually

A direct relationship is where two variables move in the same direction - they both increase/decrease at the same time Ex.) the number of inches in rainfall per month and the sale of umbrellas. An indirect relationship is where two variables move in opposite directions as one increases the other decreases at the same time Ex.) the amount of rainfall and sale of sunglasses.

Primary, Secondary, Tertiary, and Quaternary

A curve showing different combinations of goods that can be produced when available resources are used efficiently.

The points inside the curve show combinations that are inefficient. Points on the curve are efficient and points outside the curve are unattainable.

The cost of following a course of action in terms of giving up the best alternative.
Under and over utilization of resources.

Middle mixed capitalism (U.S.), low capitalism ( Russia, China), low market socialism( Cuba), and high mixed capitalism (Singapore, Brazil)

Middle mixed capitalism- mostly private, some gov't. Assumptions:
1. High reliance on the private ownership of property
2. Lots of freedom and enterprise
3. Everybody operates in his/her own self- interest
4. Competition is beneficial to the system
5. High reliance on free markets to set and adjust prices.
6. Gov't. plays a minimum role

Price and quantity demanded are indirectly related.

A change in quantity demanded is the amount of a good consumers are willing and able to buy per period at a particular price, as reflected by a point on a demand curve. A change in demand is an increase or decrease in all the Q.D'S at the same prices in the demand schedule, or a shift outward or inward on the demand curve. Caused by: A change in the # of buyers, change in consumer tastes, change in consumer incomes, and change in the price of a substitute or complementary good.

The quantity supplied is usually directly related to its price, other things constant.

The change in quantity supplied is ????? The change in Supply is ????? Caused by changes in the # of sellers, chang in seller expectations about the future price of the good, change in production costs or the price of resources used, change in technology, and others such as changes in taxes or subsidies to the seller.

Equilibrium - when the quantity demanded and quantity supplied reach each other.
Surplus - an excess in quantity supplied
Shortage - excess in quantity demanded

Cassette tapes after introduction of CD's. (decrease in quantity demanded) Poor harvests - decrease in supply (crops) but no change in demand.

Price floors - a minimum selling price that is above the equilibrium price. Ex.) Minimum wage law, rent controls of office/apt space in NYC 1947-present. Price ceiling - a maximum selling price set below equilibrium. Ex.) Rent controls due to the rising cost of housing in some cities

prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage

How responseive are consumers to a given % change in price? (Will they change their purchases by a larger, equal, or smaller %)
Supply : How responsive are sellers to a given % change in market price? ( Assuming they have no control over market price, will they change their output for sale by a larger, smaller, or equal %?)

Ed=Qb-Qa X Pa+Pb
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Pb-Pa Qa+Qb

First, compute total revenue as Price X Quantity then over time - how you determine the elasticity.

Elastic: if a % change in price generates a larger change in quantity demanded (greater than one)
Inelastic : if a % change in price generates a smaller % change in quantity demanded (less than one)
Unitary : if a % change in price equals the % percent change in quantity demanded there is no affect. (equals one)

1. # of substitutes available for product. Many- elastic (orange juice) few - inelastic (drugs)
2. % of Y required to purchase product. Large - Elastic (houses) small - inelastic (food)
3. how product is perceived by consumer. Luxury - elastic (yachts) necessity - inelastic (MD services)
4.Time factor. Long period - elastic (gas) short period - inelastic (gas) cigarettes & textbooks=inelastic, brand new cars = elastic
Supply: 1. Time - supply becomes more elastic over time. Ex.) tomato farmer

If Ey is positive = normal good. If Ey is negative = inferior good. If Ey = 1then it is unitary. The demand for normal goods decreases sales drop for new cars, houses, clothes and jewelry. But the demand for inferior goods will increase and sales will be up for used cars, clothes, and fast food such as big macs and pizza which are "recession proof" items.

IEoD = (% Change in Quantity Demanded)/(% Change in Income)

Total utility: total satisfaction you derive from consumption. Ex.) total satisfaction from drinking four glasses of water after working out.
Marginal utility: the change in total utility resulting from a one-unit change in consumption. Ex.) the change in total utility resulting from drinking the third glass.
Diminishing : the more of a good you consume per period, the smaller the increase in your total utility from additional consumption. Ex.) Watching the same movie over and over again, you start to hate it instead of it making you happy.

MUa=MUb
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Pa Pb