Notes on Microeconomics

Lecture Notes on Microeconomics 14/9/22 Thinking Like an Economist Economists play 2 roles: Scientists: Try to explain the world Policy Advisors: Try to improve it Economists employ the scientific method Scientific method: observation, theory, more observation In economics, conducting experiments is often impractical Natural experiments are offered by history Assumptions and Models Assumptions simplify the complex world Economists use models (highly simplified representation) to study economic issues Circular flow diagram: Shows how money flows through markets among household and firms Includes 2 actors: Household: Own factors of production, buy and consume Firms: buy/hire factors of production, sell goods and services Factors of production are the resources that the economy uses to produce goods and services. They include: labor, land, capital (buildings and machines used in production) The faster the economic wheel turns, the better (faster turnover) Production Possibilities Frontier...

  Lecture Notes on Microeconomics 7/9/22 Part 1, Introduction Economy -> Oikomonos (Greek), meaning "one who manages a household." The management of society's resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Economics is the study of how society manages its scarce resources. Microeconomic vs Macroeconomic Importance of Microeconomics Efficient allocation of resources Understand working of market economy Provide tools for economic analysis Examine condition of social & economic welfare Helpful in international trade Useful in business decision making a. Pricing policy b. Optimal allocation of resources c. Optimal production decision d. Demand analysis and forecasting e. Analysis of cost of production 10 Principles of Economy How People Make Decisions 1. People face trade-offs 2. The cost of something is what you give up to get it 3. Rat...