Microeconomics 7/9/22, Introduction

 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. Rational people think at the margin

4. People respond to incentives

How People Interact

5. Trade can make everyone better off

6. Markets are usually a good way to organize economic activity

7. Governments can sometimes improve market outcomes

How the Economy as a Whole Works

8. A country's standard of living depends on its ability to produce goods and services

9. Prices rise when the government prints too much money

10. Society faces a short run trade-off between inflation & unemployment