Microeconomics: Key Concepts and Applications

Introduction to Economics

• Economics is rooted in understanding human nature
• It boils down to how people behave and make decisions

General Kinds of Economics

• Microeconomics analyzes the components of the economy, focusing on individual behavior, firms, and industries, such as markets for cars and laptops.
• Macroeconomics views the economy as a whole, examining national and international aspects like unemployment, inflation, and GDP growth.
• Macroeconomics is complex and simplified by necessity

Micro vs Macro

• Microeconomics focuses on understanding the components first, while macroeconomics looks at the whole picture.
• In the 1960s, approaching macroeconomics before microeconomics was common which is now considered backwards.
• Studying components prior to looking at the whole picture can provide a deeper understanding.
• Not understanding micro component can lead to errors.
• Microeconomics is seen as "set in stone," remaining relatively constant, while macroeconomics is "wobbly" due to the ever-changing world.

Defining Microeconomics

• Microeconomics is the study of allocating scarce resources to satisfy unlimited human wants.
• People have unlimited desires, but resources are limited, necessitating allocation.
• Scarcity and choice are fundamental concepts in economics

Kinds of Resources

• Free resources have an abundant supply and cost nothing, like air.
• Scarce (economic) resources are limited, involve a cost, and require decision-making.
• Examples of scarce resources include scuba diving gear, oil, gas, plastic bags, and time.

Types of Scarce Resources

• Scarce resources are also known as inputs or factors of production
• Capital (K): Plant and equipment used to produce goods and services.
• Labor (L): Encompasses mental or physical human capital, referring to the quality and quantity of people.
• Natural Resources (NR): Includes land, minerals, fish, etc.
• Everything must fit into one of the three categories: capital, labor, or natural resources.

Investment of K and L (Capital and Labor)

• Capital (K): involves buying additional equipment, Research & Development.
• Labor (L): is composed of human capital.
• Investing in people is often neglected.
• Most valuable capital invested is in human beings, which is investing in skills to deal with people
• Develop valuable skills and focus on strengths rather than weaknesses.

Production Process

• Manufacturing involves a process where inputs (K, L, NR) are transformed into outputs (goods & services) through technology.
• Technology: Acts as a rule or recipe dictating what can be produced.
• General rule: Advances in technology typically lead to increased output.
• For example, slicing carrots with a knife yields 80/hour, while a food processor yields 300/hour.

Output

• Output comes in two forms: goods and services.
• Goods are tangible, physical items like cars and computers.
• Services are activities consumed as they are produced, such as concerts, dentist visits, or accounting.

Human Wants & Satisfaction

• Purchases are made because goods and services provide satisfaction (utility).
• Human wants are generally unlimited.
• People prefer more rather than less of things like money, cars, and grades.
• Because resources are scarce, choices must be made on how to allocate them.
• Economics is a function of human behavior, optimizing utility/satisfaction through options

Individuals vs. Groups

• Individuals are variable and unique, physically and mentally.
• It's often that people do not know others as well as individuals know themselves.
• Caveat: "Burnie's Rule"- other people sometimes know a person better than people know themselves.
• Groups as the sum of individuals, acting collectively, connects back to scarcity and choice in human behavior
• Groups are easy to characterize with the "law of large numbers" which cancels out individual behavior vagaries with the overall uniformity.
• Though everyone is different, a class can be summed up one way

Group Dynamics

• Groups do not change much over time.
• Cultures, war, politics, etc, do not change people, therefore issues don't change.
• Plato believed that music has an influence on people, creating different moods for different times.
• People don't change, therefore, people discussed the same issues 2500 years ago.

Characteristics of People

• People are self-interested, acting in their best interests and looking out for themselves, as noted by Aristotle, Thomas Hobbes, and Adam Smith.
• Self-interest leads to action, and action is a choice within scarcity.
• Understanding a person's self-interest is important
• Learning a persons self-interests means being able to predict and manipulate behaviors.
• People are just or unjust, or moderate or not, applies to groups and individuals.
• A just person balances passion, desire, and reason.
• An unjust person is out of balance

Moderation

• Aristotle: Moderation as a "natural law"
• Moderation is about staying on the bridge:
  • Defect (Stay off the right and left side of the bridge)
  • Moderation (Stay on the bridge and balance)
  • Excess (Stay off the right and left side of the bridge)
• Moderation is a about eating habits:
  • Defect (Starving)
  • Moderation (Eating when necessary and not gorging)
  • Excess (Eating too much, all the time)

Key Idea - Balance

• If one is out of balance (Plato) moderation (Aristotle), that could lead to tragedy.
• Individuals and Societies:
• Plato: The sum of just individuals leads to a just society; some societies lack justices like drug culture, mafia, gangs.
  • Those individuals are composed unjust
  • Aristotle believes moderation in society is a large middle/ stable class
  • The middle class has moderate wealth
  • A class too rich can become snob
  • A class too power becomes ignorant

Personal Wants

• People have unlimited wants.
• More of something is better than less in most situations.
• People are competitive which is keeping up with Joneses' to varying degrees, and it differs between people.
  • In general, people tend to not like other people compete.
• Two ways to be competitive: -Power: Influence and control - nothing wrong with it as long as it is properly used. - Good: Working for others can be altruisitic -Bad: Working for one-self can be power hungry - positions go up, power goes up. The higher position holds the greater abuse

Other Personal Wants

• Recognition: Is important in the marketing sector because of to the desire to be know.
  • Depends by person, example movie stars vs politicians.
  • People like buying things to increase recognition.
  • Veblem goods: Goods bought bought to increase recognition.
  • Depends being in a crowd vs being out of a crowd.
• Failure: People make mistakes, but should learn or not repeat the same mistakes twice.
  • Mistakes don't exists, it points a person in a specific decision and it's up to the person to proceed.

Aspects of Life

• Simplisitic: Most things in life are complex, but humans tend to to over simplify complex arguments.
  • Over simplifying things leads to inaccurate data

Types of Groups

• Tribal is when birds of feather flock together.
  • Indians, Africans, tribes are everywhere and out of control.

Rationals

• Rational can be economic concept we act on. -We believe choices from with we derive our concept -Economic Definition is choice base on scarcity

Institutions

• Institutions is that we believe ideas. -Quick definition if Habits of Mind"We believe & accept things and do not think about real -our thinking whether is

What is a Fact

• Facts are important in order to gather more information
• Rational ignorance is something where depends how they
• Facts vs beliefs: fact and logic best guests
• Two Kind of people -1Open-minded people: facts not belifes

Explore the fundamentals of microeconomics, including market analysis, firm behavior, and capital investment. Understand how individuals and firms make decisions and how these decisions affect markets. Learn about physical and human capital and their impact on productivity.