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Economics

Concepts

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Economics studies behaviour and markets What would an individual do if circumstances

change? Why do we see what we see? Equilibrium.

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(super short) Introduction to Economics IES! We have preconceptions Economists are just a bunch with common

preconceived ideas = Economics paradigm Unlimited wants Scarce resources Choice is a consequence of scarcity Opportunity cost is a consequence of scarcity Opportunity cost = too important to miss Homo economicus = (smart) maximizer

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Some (a little) more techy stuff Decision makers

Individuals Households Firms

Individuals/households maximize utility Scarcity => maximize surplus

Firms maximize profits Profits = surplus Why profits? “Corporations are people, my friend!” ® Mitt Romney

Marginal reasoning Marginal cost Marginal benefit Marginal revenue

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Policies and morals Positive statements vs Normative statements Policy considerations are a mix of positive and

normative

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Models and theories A model is an abstract that can be manipulated

easily A theory = model + observed real-world

phenomena Theories are often a mix of positive and normative So we say there are ideologies in Economics

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The Law of Demand Maximization Price is given Marginal benefit is diminishing Equilibrium for a person

Price = marginal benefit Price up => quantity demanded down Price down => quantity demanded up

The Law of Demand: Price and quantity demanded are inversely related UNIVERSAL and FOUNDATION

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Supply Maximization Price is given Marginal cost is increasing Equilibrium for a competitive firm

Price = marginal revenue Price up => quantity demanded up Price down => quantity demanded down

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Competitive market Information requirements What price reflects

Marginal value Marginal cost (= value of something else)

Equilibrium is what we observe (and the supply/demand curves are not)

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Comparative statics Endogenous variables

Equilibrium price Equilibrium quantity

Endogenous variables Demand

Price of other goods Income Weather + + + +

Supply Prices of inputs Technology Expectations

Policies that shift the curves

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Efficiency Surplus from trade Maximized in equilibrium

(what equilibrium?)