second year econ notes.docx - Class 1 Microeconomics branch...

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Class 1: 13/09/16: Microeconomics: branch of economics that deals w/ the beh. Of individual economic units (consumers, firms, workers, investors) + markets that these units comprise Macroeconomics: branch of economics that deals w/ aggregate economic variables e.g. level & growth of national output, interest rates, unemployment, inflation Consumer Trade-offs: limited incomes (spent or saved) Worker Trade-offs: 1) decide whether & when to enter workforce. 2) choice of employment. 3) decide how many hrs/week to work (labor vs. leisure) Firm Tradeoffs: kinds of products to produce, & resources available to produce them Centrally Planned Economy: prices set by the government Market Economy: prices determined by interactions of consumers, workers, firms. Interactions occur in markets (collections of buyers/sellers that together determine the price of a good) Theories: developed to explain observed phenomena in terms of a set of basic rules/assumptions Model: mathematical representation, based on economic theory of a firm, market, or other entity. (+diagrams) Positive Analysis: relationships of cause & effect Normative Analysis: questions of what ought to be Market: collection of buyers/sellers that, through their actual/potential interactions determine price of a prod Market Definition: determination of the buyers, sellers, range of products that should be included in a particular market Arbitrage: buying @ low price at one location & selling at higher in another Competitive vs. Non-competitive Markets Perfectly Competitive Market: many buyers/sellers, no one has significant impact on price (price takers) Non-competitive: individual firms can jointly affect the price (firms are price searchers), attempt to determine the optimal, profit maximizing price -When characterizing, focus on price competition (economists) -Business people will consider other strategies though (rivalry) Extent of a Market: boundaries of a market, both geographical & range of prod sold/prod within company must understand who its actual & potential competitors are for various prods it sells/might sell can be important for public policy decisions e.g. in antitrust or competition policy Supply-Demand Analysis can be applied to: a) Understanding/predicting how changing world economic conditions affect market price/production b) Evaluating impact of gov price controls (minimum wage, price supports, production incentives) c) Determining how taxes, subsidies, tariffs, import quotas affect consumers/producers The Supply Curve : relationship b/w quantity of a good that producers are willing to sell & the price of the good ... upward sloping, higher price, more firms are able and willing to produce and sell -Production costs fall, firms can produce same quantity @ lower price or larger quantity at same price… shift Other Variables that Affect Supply -Quantity producers are willing to sell depends not only on price received, but on production costs (wages, interest charges, cost of raw materials) -When production costs decrease, output increases no matter what mkt price is… entire curve shifts right

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