Microeconomics Auburn Macy Finck

the social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

the condition whereby the resources we use to produce goods and services are limited relative to our wants for them

= economic good = good for which you can NOT get all you want at zero COST

you can get all you want at zero cost

signal that tells producers what and how much to produce; in a standard market transaction it is paid by the consumer

the sacrifice associated with making a choice; in a standard market transaction it is paid by the producer

out-of-pocket, monetary payments

most valued option forgone

explicit + Implicit cost

the input used in the production of goods and services, aka FACTORS OF PRODUCTION

land, oil, lumber, ect.

Physical and mental talents used in production

All manufactured goods used in production

We try to MAXIMIZE our utility by using marginal decision making

Note:utility maximization by producers and consumers usually maximizes social welfare

the satisfaction a consumer obtains from the consumption of a good or service

additional; the change that results from an additional unit

statements about economic behavior or the economy that enable prediction of the probable effects of certain actions

a simplified representation of how something works

any institution that brings together buyers and sellers of a particular good or service

households demand goods and services which are supplied by firms in exchange for money

firms demand resources which are supplied by households in exchange for money

a table that shoes how much of a good or service consumers will want to buy at various prices

the price of a good and the quantity demanded are inversely related

a line that shows the maximum that consumers are willing to pay for any quantity

the relationship between P and Qd for all possible prices

the number of units consumers are willing to buy at a specific price

a change in the amount purchased caused by a change in the price; a movement along the curve

A shift in the entire curve to the left or right

Income (the only way to determine the classification of a good is by the relationship between income and demand)

goods for which income and demand move together

goods for which income and demand move the opposite

Price of related goods

- goods that take the place of each other in consumption
- the price of one good and the demand for the other move together

- goods that are used together in consumption
- the price of one good and the demand for the other
move opposite

Expectations of future prices
-expected future price changes and current demand move together

Number of Buyers
-Example: as the "baby boomers" age, demand increases for Social Security, Viagra, etc.

Tastes and preferences
- nike shorts, monograms, man buns

a table that shows how much of a good or service producers will offer for sale at various prices

the price of a good and the quantity supplied are directly (positively) related

a line that shows the minimum that producers are willing to accept as payment for any quantity

the relationship between P and Qs for all possible prices

the number of units producers are willing to offer for sale at a specific price

a change in the amount offered for sale caused by a change in the price; a movement along the curve

a shift of the entire curve to the right or left

Input/resource prices
(input prices and supply move opposite)

Technology
- the production process of changing economic resources into goods and services; when technology improves, supply increases

Taxes
- taxation and supply move opposite

Expectations of Future Prices
-expected future price changes and current supply move opposite; good must be durable/storable

Number of sellers
- usually the number of sellers in a market changes as profits change; firms will enter when profit is high and exit when it is low

price at which the market clears (Qs=Qd)

no tendency for change

at prices above Pe, Qs>Qd
-puts downward pressure on process until the surplus is eliminated

Qs-Qd units

at prices below Pe Qd>Qs
-put upward pressure on prices until the shortage is eliminated

Qd-Qs units

Qs=2+2P
Qd=20-4P

the allocation of goods among consumers using prices

economists believe that price rationing is the most efficient method of allocating goods and services

every consumer willing to pay at least the equilibrium price will get to have the good

-With price rationing, the consumers willing to pay the most will be the recipients of the good
-With other rationing methods, the allocation is random

-Demand increases
-Shortage at the old price
-Pe rises
-Qe rises

-Supply increases
-Surplus at the old price
-Pe falls
-Qe rises

-Supply of SUVs increases
-Price of SUVs falls
-Demand for gas increases
-Pe rises
-Qe rises

-Demand increases
-Supply decreases
-Pe rises
-ΔQe indeterminate

legal restriction on prices

maximum legal price

minimum legal price

-Shortages
-Inefficient allocation among consumers
-Wasted resources
-Low quality

-Surpluses
-Inefficient allocation among producers
-Wasted resources
-Protection from imports

Price controls have no effect on the market price if they are not set properly.

A price ceiling set above Pe, or a price floor set below, will not change the behavior of producers and consumers; the market remains in equilibrium

= willingness to pay - amount paid

the maximum price at which a consumer will buy a good

= amount received - willingness to accept

the minimum price at which a producer will sell a good