Chapter 1 (First Principles)
Individual choicedecisions by an individual about what to do and what not to do.
Four economic principles underlie the economics of individual choice:
must make choices because resources are scarce.
A resource is an
Test #1 Review
Define Economics: Economics is the study of how individuals choose to use their
scarce resources in an attempt to satisfy their unlimited wants.
List and define the different economic resources: (a) Land is all natural res
Chapter One Summary:
Economics is the study of how people choose to use their scarce resources to produce,
exchange, and consume goods and services in an attempt to satisfy unlimited wants.
The economics problem arises from the conflict between scarce
Define and explain the law of demand and the law of supply.
Law of demand: quantity of a good demanded inversely related to its price other
things held constant (price change is a change in quantity demanded, along
curve- shift in curve, change in
Lecture 1 Notes, Production Function
Refer to the mathematical relation that describes the set of technological
possibilities as the production function, expressed
Y = A F(K,N),
where Y is output (real GDP), K is the stock of physical capital (buildings a
Lecture 4 Notes, Short and Long-Run Equilibrium
Short-run equilibrium. Given the tax environment and peoples' expectations of
future income, profitability, etc, the real interest rate adjusts (in this theory) to
reconcile saving and investment. To make th
Lecture 3 Notes, Investment
Purchases of goods can be decomposed into
GNP = Y + i NFA = C + I + G + CA,
or, in a minor variation,
S = Sp + Sg = I + CA.
Sp = I + Def + CA.
Sp= Y+ i NFA-T-C = private saving,
Def = G-T = - Sg = the government defici
Lecture 2 Notes, Labor
Labor demand. The demand for labor comes straight from the production
function-or, rather, its close cousin the marginal product of labor, or MPN
curve. The value of the additional output is P times MPN, where P is the dollar
Lecture 5 Notes, Trade Deficits
What's missing is any mention of how our goods compete, and at what price
and exchange rate, in markets for goods. To the extent you think prices and
exchange rates matter, and I think they do somewhat, this theory is defic
Lecture 6 Notes, Quantity Theory
Of course the world is more complicated than this, and monetary policy
consists of more than just currency exchanges, but some of the same reasoning
applies more generally. The so-called quantity theory of money is the res
Lecture 10 Notes, Value of Money
If the relation between money growth and inflation is so clear, why don't these
countries simply print less money? The real problem most of these countries
had was a large fiscal deficit. Let's think how that influences mo
Lecture 9 Notes, Money Growth
The quantity theory was the basis (or a big part of it) for one of the sharpest
policy debates in the postwar period. Then, as now, there were many
businessmen, economists, and government officials who thought that monetary
Lecture 8 Notes, Interest Rates
Real output Y and the real interest rate r are determined by the real side of the
economy: the production function, the labor market, and the capital market.
The money stock governs the price level and the rate of inflation
Lecture 7 Notes, Inflation
Open Market Operations
Measure the deficit in dollars (rather than the base-year prices, generally use in
the National Income and Product Accounts) this is something like:
Pt (Gt-Tt) = dMt = Mt - Mt-1
which says each dollar of d
Lecture 1 Notes, Monopoly
The monopolist is the single supply-side of the market and has complete control
over the amount oered for sale; the monopolist controls price but must operate
along consumer demand.
Revenue in Monopoly
Review the r
Lecture 3 Notes, Monopsony
A monopsony is a market in which there is a single buyer. Typically, a monopsonist chooses to maximize the total value derived from buying the goods minus
the total expenditure on the goods: V (Q) E(Q).
Lecture 4 Notes, Pricing
Third Degree Price Discrimination
Third degree price discrimination is the practice of dividing consumers into two
or more groups with separate demand curves and charging dierent prices to
each group. Now maximize the prot:
Lecture 2 Notes, Price Regualtion
How does a monopolist allocate production between plants?
Suppose the rm produces quantity Q1 with cost C1 (Q1 ) for plant 1, and quantity Q2 with cost C2 (Q2 ) for plant 2. The total quantity is
QT = Q
Lecture 5 Notes, Tariffs
When there are two consumers. Consumer 1 has higher demand than consumer
2. If setting P = M C, consumer 1 consumes Q1 units and consumer 2 consumer
Q2 units. A1 is consumer 1s consumer surplus, and A2 is consumer
Lecture 6 Notes, Game Theory
In monopolistic competition market, there are many sellers, and the sellers do
not consider their opponents strategies; nonetheless, in oligopoly market, there
are a few sellers, and the sellers must consider the
Lecture 10 Notes, Labor Supply
Supply of Labor
Derive the supply of labor by solving consumers utility maximization problems.
Two variables determining the utility are leisure (L), which is measured by
hours, and income (Y ); the prices are w and 1 resp
Lecture 9 Notes, Labor Demand
Dominant Firm Model
The dominant rm model is the model that in some oligopolistic markets, one
large rm has a major share of total sales, and a group of smaller rms supplies
the remainder of the market. The large rm has pow
Lecture 8 Notes, Prisoners Dilemma
Collusion Prisoners Dilemma
Last time we talked about the prisoners dilemma. The conclusion is that they
will betray the other.
Now apply it to the cases of Cournot and Bertrand models.
In the Cournot model, the demand
Lecture 7 Notes, Oligopoly Models
Stackelberg model is an oligopoly model in which rms choose quantities sequentially.
if rm 1 pro-duces crispy and rm 2 produces sweet, the payo is if rm 1
produces sweet and rm 2 produces crispy, the payo is