191lectures09

191lectures09 - Econ 191 Honors Microeconomics Outline of...

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Econ 191 Honors Microeconomics Outline of Lectures  Francis T. Lui Department of Economics HKUST (Spring 2009) 1
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Preliminaries This course assumes that you have already had some knowledge of elementary microeconomics. Emphasis is placed on applications. It is believed that you can get a better understanding of basic economic concepts by using them again and again in different situations. In some parts of the course, new theories will be introduced. These notes, which are concise in nature, will NOT be a substitute for reading the textbook. They are only meant for guiding the discussions in class. I will often pose questions to motivate discussions. Your active participation is expected. Some frequently asked questions related to economics : What is Economics? (The study of the optimal allocation of scarce resources for competing ends) Why do people behave in certain ways? (Constraints, preferences, or culture?) Why do institutions exist as what they are? Preconditions for a free market system (Competition; non-intervention; reward winners.) Using economics as a social engineering tool? (Analysis or policy recommendations?) How do we learn new economic ideas? Applying and theorizing (Analogy of eye of a storm) What make a good economic model? 2
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Logical consistency Predictive power Theory of everything? What to do when there are competing models? (Example of ship coming from afar) “Sophisticated simplicity” Aesthetic value The beauty of good economics (What is a good poem; abstraction; generalization. Pp. 49) Is pursuit of excellence rational? (Tournament theory; Michelangelo’s Last Judgment. Pp. 11) 3
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Chapter 1: Introduction - Simple Theory of Supply and Demand The price mechanism is the most efficient system of resource allocation that we know of. A significant part of microeconomics is concerned about how this mechanism works. To understand it, we need to develop the demand and supply curves (functions). (A) The Demand curve Concept of opportunity cost” Measuring opportunity cost (e.g.: front-page advertisement. Pp. 39) Is there free lunch? (TANSTAAFL) Law of Demand (Price Quantity demanded , when other things are being held constant. The importance of ceteris paribus and “control experiments.”) Is it a law? Counter-examples? (B) The Supply curve Supply and cost (Technology; human capital; labor cost.) Slope of supply curve generally positive (Why?) (C) The Price Mechanism Equilibrium price What is it? What information does it carry? What is its role in resource allocation? 4
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Difficulties in price setting (e.g.: stock prices; the role of “housing chips.” Pp. 33) Convergence to equilibrium price P S P* D Q* Q P Excess supply S P1 P2 Excess demand D Q 5
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P S S’ P* D’ D Q* Q Movement of supply (E.g.: externality of human capital; economy of scale; Nokia. Pp. 42) Movement of demand Concept of complements: butter & bread (Price of butter Price of bread ) Concept of substitutes: coffee and tea (Price of coffee Price of tea ) (E.g.: women’s clothing, Pp. 4; food and gasoline prices)
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This note was uploaded on 10/11/2009 for the course ECON 191 taught by Professor Chen during the Spring '08 term at HKUST.

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191lectures09 - Econ 191 Honors Microeconomics Outline of...

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