Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
1/1
Professor: Michael Krashinsky
( KRASH IN SKEE )
THE BASICS (What do I have to know about this course?)
1. What materials do I need?
THE BOOK: Mankiw, Kneebone, and McKenzie Principles of
Microeconomics, 5th Canadian edition, Recommended not required
T
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 11 Lecture Notes ECMA04 2012
11/1
Course evaluations?
Now turn to issue of Government Financing of certain goods.
Core issue  why have government at all?
After all, with exception of monopoly, we have seen that market
works well to maximize NSB or G
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 10 Lecture Notes ECMA04 2012
10/1
We have been discussing natural monopoly
Our example: Demand
Cost
P = 40 Q
TC = 300
We found that although the market could provide this good,
the fact that it is a natural monopoly (there is only room for
one firm)
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 9 Lecture Notes ECMA04 2012
9/1
Last week, we started monopoly and observed that the
monopolist would produce (maximize profits) where MR = MC
Of course, this is subject in the short run to the same issue that
we discussed earlier with respect to com
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 8 Lecture Notes ECMA04 2012
8/1
FIRST SEVEN PAGES ARE REVIEW
Review what happens in long run in perfect competition:
Case 1: If negative profits, assume EXIT
Case 2: If positive profits, assume ENTRY
Reminder !
Profits are economic profits
So if > 0,
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 7 Lecture Notes ECMA04 2012
7/1
Review the decision rule for a firm:
The goal of the firm is to maximize profits
Profit = = TR TC
Remember, this must include all costs
Now we have TC as a function of Q
[remember table and equations]
To maximize , tak
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 6 Lecture Notes ECMA04 2012
6/1
Where are we in the course?
We have looked at the demand side and where demand comes from,
studied elasticity, and looked at a few interesting applications.
Now move to general issue of the supply side.
We will begin w
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 5 Lecture Notes ECMA04 2012
5/1
Review tax wedge:
NOTE: WEDGE IS SAME IF TAX ON BUYER OR SELLER
Elasticity of Demand = ED = (dQ/dP)(P/Q) = (Q/BS)(P0/Q0)
Elasticity of Supply = ES = (dQ/dP)(P/Q) = (Q/SS)(P0/Q0)
ED/ES = SS/BS
5/2
A second Example:
Dema
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 4 Lecture Notes ECMA04 2012
Last week we began looking behind the demand curve
First we defined a decision rule for the individual consumer:
Maximize Consumer Surplus CS, which is the net gain from
buying a given number of units X of the good in ques
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 3 Lecture Notes ECMA04 2012
3/1
Term Exam #1 Wednesday October 17
REVIEW: Prices play a critical role in allocating resources
An increase in demand leads to an imbalance between what buyers
want to buy and what sellers want to sell
WE CALL THIS EXCE
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 2 Lecture Notes ECMA04 2012
2/1
In order to figure out how we choose the best point on the PPF, we have to
know what consumers want to consume. In a decentralized economy,
consumers have a lot to say in determining what is produced.
We begin by defin
Introductory Microeconomics: A Mathematical Approach
ECM A04

Fall 2012
Week 12 Lecture Notes ECMA04 2012 (Note also include notes for extra Monday lecture)
12/1
Go back to problem involving positive externalities:
U1 = 12Q .5Q2
Uexternal = +3Q
PMC = 6
Since PMC = 6, a competitive market would have a price of 6
Again: private