Lecture 2 - ECONOMICS 100A Professor Rika Mortimer 1/22/09...

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ECONOMICS 100A Professor Rika Mortimer 1/22/09 Lecture 2 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. LECTURE Today I will introduce microeconomics, the basics that you all should have learned from Econ 1. Microeconomics describes how prices are determined. In a centrally planned economy, prices are set by the government. In the market economy, like the U.S., prices are determined by the interactions of consumers, workers, and firms. In economics, we are interested in explaining observed phenomenon. For example, we have firm theories. We usually assume that firms maximize profits. Using that assumption, we decide how to employ workers, raise capital, and so on. Also based on theories, we like to make predictions. For example, if wages decline by 10%, how many workers do firms want to hire? Using theories, we can answer these questions if we have enough information about the economy and company. There are two types of analysis in trying to answer economic questions. The first is positive analysis. This describes relationships between cause and effect. Normative analysis examines questions of what ought to be. So the first one is more factual, while the second involves value judgment. If we want to study about markets, we need to know what they are. If we just say markets, what do we mean? Especially in microeconomics, we can be talking about a specific field within the same industry. Arbitrage is the practice of buying at a low price at one location and selling at a higher price in another. Such opportunities are very intuitive. If you can get something at low price and turn it around to sell it at a higher price, you would make profit. When arbitrage opportunities are available, price discrimination becomes difficult. So that type
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Lecture 2 - ECONOMICS 100A Professor Rika Mortimer 1/22/09...

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