Microeconomics Lecture Notes PDF - Test 1 (Lectures 1-4)

 Intro to Micro-Lecture 1 (1113) Lecture 2 is basics of econ/human nature) 2 - General kinds of Econ I. Microeconomics...

 Intro to Micro-Lecture 1 (1113) Lecture 2 is basics of econ/human nature) 2 - General kinds of Econ I. Microeconomics , components of the economy behavior individuals Y - markets firsthalf firms/industry behavior Icars , laptops etc) - secondhale ,. Macroeconomics : economy as 2 a whole -national/international (physical area (e) - ex : unemployment rate, inflation rate, growth (GDP) compex simplified , I most people think of macrol by necessity key Point : Micro Eato - Macro ↳ components ↳ whole · study the components before the whole · 1960s : Macro first (backwards) ↳ more interesting /relevantWar times computers - - why they got it wrong I focus on Macro before they knew the micro ↳ didn't know the human component · Micro is "Set in Stone" lit doesn't change much be it's true · Macro is "wobbly" I always changing be the world is changing  Microeconomics (formal definition) the study of: the allocation of scarce resources to alternative uses in order to satisfy unlimited human wants - resources are scarce have unlimited desires for things people - ↳ We have to learn to allocate definition quick carity i 2 kinds of resources : 1. Free abundant : supply : (therefore) don't have to - it costs nothing > - * ex : air makea decision. 2 Scarcel economic) limited : :- they involve cost > - decision making is * ex : air-scuba diving necessary oil gas plastic bags - , time-class or not 3 Types of Scarce Resources : - aka : inputs or factors of production 1. Capital (K) plant and equipment used to produce : goods & services(other items - not $as in finance ↳ buildings/equipment. Labor 2 (1) : mental or physical/human capital) ↳ how good is it ↳ how many people I quality quantity. Natural Resources (NR) 3 : land , minerals , fish , etc · everything has to fit into one of the 3 categories Resources Free. 2 everythin Scarce R (capital) llabor) (natural) review - Veblem quote -  January IS Investment of K,, · Capital (k) : buy additional equipment farmer buys a tractor ex : - Research & Development (R & D) developers : = plavstilop products lanr way to invest in Capital) · labor /1) : composed of human capital -change due to investment /X-change) "Most valuable of all capital is that invested in human beings" Alfred Marshall (UK Economist 1900s) - - ↳ investing in people is often neglected · how to invest: - increase in numbers (quantity) - increase in knowledge (education ( - * increase in personal Skills (how to deal w * often neglected people (but life is a people business !!) · develop the skills that you have a stay away from the ones that you don't (potential skills) Concentrate ↳ What good , don't on you're at Worry about what you're not because someone else is already better process Manufacturing Inputs Output K. L , NR Echology goods & services  take inputs through technology to get goods & services · technology : a rule or recipe that tells us what we can produce general rule : ↑ technolog Y leads to ↑ output - ex Slicing carrots : : * knife-So/nr * food processor : 300/hr * caveat: not true always I think if tech is really useful Output 12 kinds) 1. Goods : physical things (cars , computers etc) ,. Services 2 : activities Consumed the instant they are produced concert , dentist ex: , accounting · Why ? How come we buy these things ? -because these things give us satisfaction (UTILITY( · human wants are generally unlimited - we prefer more of something to less ex money cars grades et c (think costco : , , , ↳ But resources are scarce : we must choose how to allocate things key point : economics is a function of human behavior - we must choose between options to maximize our Utility /satisfaction)  Lecture 2- Human Nature January is Individuals vs. Groups - overall characteristics 1. Individuals are variable a unique obvious (all people different ( 4 physically not - obvious mentally G - ex intelligence , natural abilities, : desires , interests * idea is that we don't know others as well as we know ourselves * Caveat: Burnie's Rule sometimes others know - you better than you know yourself ex : drinking. 2 Groups : the sum (2) of individuals : - Collective action ↳ goes back to scarcity Choice which human behavior is - easy to characterize a differences - "law of large numbers" Vaguaries of individual - behavior are cancelled out by the uniformity of the whole ↳ everyone in here is different but the class can be summed up in one way -idea : groups don't change much over time * ex : this class is about the same from semester to semester - over time Cultures , War , politics, et c , · idea : people don't change , therefore, the issues don't Change  eX : music Q: does music have a negative influence on people or positive A : p yes (for me) Az : Plato 1427-347 BC) said that music had an influence on people happy sad drinking : different music ↳ , , for different times * the same issue was discussed 2500 years ago because people don't change * Q : What are people like ? A : 8 characteristics of people people are : 1 self interested : Aristotle (350BC). Thomas Hobbes11600 in UK) Adam Smith (1776 godfather of modern econ) , , = people act in their own best interests - looking out for # (themselves leads * important point: self-interest ot action action is a choice Iscarcity & Choice) * if you learn a person's self-interest you can : 1. predict their behavior. manipulate people (good or bad) 2 eXp burning building I stay a burn get out) leasy) get out for fear of burning ↳ limits your choices exc : making money I get a job , start a company, sell , rob a bank ,invest (. Just 2 Unjust (Plato) to individuals or applies. · Of or groups Moderate or Not (Aristotle) - individuals : * Plato a just person had : a balance between passion , desire and , reason La 3 legged Stool & Na r an unjust person is out of balance ↳ the stool tips over ↳ too much or too little of something ex too much passion for sports too much studying too much desire for something ↳ you'll do anything to get it too much reason (Spock) too little reason (goodTV) #Aristotle : moderation as a "natural law" defect &3/ moderation excess ex : self interest: defectmodern Stay on the bridge moderation ex : eating - in duzmodern a  · key idea : if you're out of balance (plato l or not moderate (Aristotle) this can lead to tragedy eX : Chris Barley : ate , drank , drugs , died early (too much excesse dead) 27 Club : dead - therefore stay moderate 1. Individuals. 2 societies now al plato of just in dividuals e just society : Sum some societies -> lack of justice - ex drug culture , Mafia gangs rich : , , groups government, frats , ↳ of unjust individuals composed b) Aristotle : moderation in society is a large middle class - middle class leads to stability in society ↳ mid Class has moderate wealth. ↳ if too rich thaughty arrogant, , hard to control (herding cats) If ↳ too poor e ignorant gullible easily , , led (will believe anything Isusceptible to demogognes) *demogogues people who incite : crowds for a cause and or for their own benefit - in US , large mid. Class (not susceptible to instability ( countries are susceptible poor -. Have unlimited Wants (see 3 micro definition) - more of something is better than less ↳ Why all you can eat works 4. Competitive : keeping up with the Joneses' -we all have this to varying degrees > people are different - -generally people don't like competition by others , other person is better especially if the · 2 ways to be competitive (for class) : ↓ Power the ability to influenced control : (Mastery (book] Power [book]) , ↳ varying degrees nothing Wrong power , if it's properly used Q is: it altruistic or not ↳ um1 Working for others (good) working for yourself (bad) (politicians) ↑ positions - ↑ power > - ex : VP + President rich- > power - ex : Bill Gates , Elon Musk politics dangerous one : - ↳ about power AND money I not just power not money) , ↑ power of > - ↑ potential for abuse govt - Constitution set up to limit power ↳ inefficient by design "checks a balances  in. 2 Recognition /important : marketing) the desire to be known ↳by the person varies - ex: movie Stars like to be known Politicians have to be known businessmen if you donate $ - to Auburn, ↑ my'll put your name on the building -everyone likes to buy things to increase recognition * veblem goods : goods bought to increase recognition - to be in the"in crowd" depends on group OV... fear of being left out of theincrowd - mor # * Thorstein Veblem - goods bought solely to impress others · Book Theory of the Leisure Class - 11809) Chapter 4 - - Conspicuous Consumption : compete on Stuff can go to excess ↳ bought an antenea to put on cars look like you have one to make it key idea : power & recognition can be out of balance , expecially excess dangerous - especially politics - Theory of NegativeSelection : hiring less competent people so the "boss" stays on top. 5 Fallie : people make mistakes ↳ or-but don't make the same one twice -learning : for those learning--  mistakes don't exist I so don't L have will shut you down) fear right direction ↳ , it they only help point you in the Edison's light bulb. 6 Simplistic but most things in life are complex : people tend to oversimplify complex - ↳ arguments- even down to I thing reductionism Oversimplifying things : ↳ leads to inaccurate conclusions ↳ in STATS - "omitted variable problem" ⑪leaving out something leads to inaccurate conclusions) fear limits solution choice - types are partially true but not complete they are shortcuts in thinking ↳ ex problems in grade schools/Its : teachers solution is $11 thing ↳ but there's reasons many - purpose of College is to teach you how to think Cholistically "The truth should be made as simple as possible - 17 but Simpler not - Einstein 7 Tribal. : "Birds of a feather flock , together" Plato - - Clicke : indians , Africa tribes are everywhere Can quickly get , out of control With incitement (provoking) it to * demagogues use get followers - Al tribes Sharpen - ex of other :  1. Race : B/W/ ↳ color is not important (Yugoslavia-partly religious (Africa-all black lots of tribes ,. 2 Sports : Alabama (Auburn or Alabama. Politics 3 4. Religion 5. Clubs band Greek Life Campus : , , , Sports - tribes can be cultures * ↓ differences- ↓ tribalism > -social media as increased tribalism define how tribal want to be - you can you. Rational 8 : based their beliefs on ↳ important economic concept - - we act based on what we believe * economic definition - scarcity & Choice Our choices based on What we believef I "People believe what they want believe" - quotes - * "it's a difficult decision-I can't decide " 1 MU> MC Do it V Situation : - ~ Situation 2 : MU > MC > - Do it ? on the Situation 3 : MU = MC - Depends on his beliefs mouse trap ↳ Situation 4 Mu < MC Don't do it X : > - like #8-people are rational based on their beliefs · whatever he does is a rational choice because of the rules ↳ rational in economics (MU vs MC) based on his beliefs (rule 8) · beliefs are - correct >rewarded · beliefs are not - correct > punished * this relates to everything * · Relates to 2 rules& characteristics 1 Explains Why people don't change much. people are self-interested (H) > Max utility - people don't change much1#3) -. 2 Shows Why people are different - different utility/constraints. 3 People are rational based on beliefs (#8) - 2 rules 4. People are Falliable (#5) - may make Wrong choice in beliefs Effort Winners try harder than "losers" ,. 5. : to get around restraints - "Winners" have higher mu so mu > mc a - sometimes MC is higher So greater chance that mu < mc ↳ ex : live in Village (lowm2) vs live in town (high mc) vs mc) rainy day (high walk to campus on · external constraints - outside of you ↳ physical Internal · constraints - hold you back within you ↳ morals act as internal constraint - some people use a lack of internal constraints to get around external constraints ex : getting money Internal constraints : get job * * NO internal constraints steal it : ex : getting good grade to class a study * internal constraints go : * NO internal constraints : Cheat · people are individuals ↳ internal constraints depend on the individual ex : politics : people believe groups are good or bad I might have truth , but is a steryotype ↳ depends on the individuals in the group * can change over time dependson ex : workers bus good got Republicans : ais , Democrats workers & govt good business bad : , · groups make better decision than individual ↳ but itdepends on who is in the group (Be Discerning ( not · a given that government will do the right thing & solve the problem (too simple)  Lecture 4 - Consumer Choice 2 Rules -> how we decide to purchase goods &service , How ?: Max utility & mu vs mc (a little diff) - Max utility subject to constraint - Constraints 12 w regards to buying something) · : 1 Price how much is it?. : 2. Budget : not income - just how much you're willing to spend · Price : 1. Nominal price : actual price in dollars usein / ex : 21 pilots concert in Tennessee Lecture - ticket price = $100 (nominal price). Full price 2 : nominal price + transactions cost M ↳ all other associated costs use in real life Nominal $100 (ticket) 7 cost Transactions Cost + + $50 $200 (gas) (hotel) varing on person + $100 (food) Sweatshirt) Sparking + $80 + $20 ( ( + 2 days (time has value) Full cost = $610 + 2 days Draw Budget Line Budget line (BL) - given in quantities (Q) - determined by Prices (P but Price ($) budget () ↳  ($) Price get > budget line (a) - Budget = $ for food - crave 2 doughnuts (500 each foods : Poptarts (50k each) how many of each can you buy ? doughnuts budget/price = 61 90 12 doughnuts. = Pop tarts= 6/ 58 12 Hop tarts. = Ze quantities - Draw in quantities Q doughnuts line endpoints= 12 · budgetall possible ⑧ E shows is *= combosyoua budget - · price 6- budget 03 ⑧ poptarts 12Q · opportunity cost : the highest valued alternative given up ie Your #2 choice : ↳ ex: your #1 choice is what you actually buy/choose [pizza for lunch & your #2 choice is your what you give up ( chicken tenders) (highest value) # 3 CSC Nat Chines a - burger come to class (#1 Choice Skip Copportunity cost) ↳ gave skipping to be here up  Skip (#1 choice) come to class Copportunity cost) ↳ important test of 11 "Why talk is cheap a actions count" - talk I opportunity cost - actions involve opportunity cost budget live represents cost opportunity · ↳ must give up more of X to get more of y ① boughts doughnuts & to get 3 more must give up · you poptarts opportunity cost 3 ⑳ 3 69 a poptarts budget line on ⑳portunity ③ unattainable bundle 1 Budget line. : represents opportunity cost 2 Opportunity. set: no opportunity cost because you still have money to spend ↳ didn't have to give up anything. Unattainable bundle : 3 outside of budget line ↳ not enough budget for this · budget : these can change Price  Utility the satisfaction you get from · : buying goods & Services ↳ takes place over time * short time-eating food * long time-buying a car · Father of utility theory Jeremy Bentham (1748-1832) : relived in UK - measured in utils * in class a number ex : 1 eat 1 over : 7utils - Reality : Bentham thought we could measure utils but the reality is that we can't · different products provide different levels of utility to different people (unique and variable) ex : favorite pizza topping - we know best how to satisfy our own utility · marginal utility ↳ satisfaction of doing something once Q If desert island I show : you're on a up woreos A : the oreo the most satisfaction is that gives you the first one the one that gives you the least , Satisfaction is the last one · marginal utility : Change total Utility (TO) from the in consumption of 1 additional unit · total utility (TV) of all the units sum utility consumed - :  eX : Goreos- MU E of all = mu - - is "This I 10Utils 10 Utils " great 2 Sutils 18 Utils 5 utils ↓ 23 utils I "I'm getting 3 utils full " 26 utils "This is my max utility I Util last one " 27 Utils I'm full" I "no & - Util 26 Utils · Law of Diminishing Marginal Utility : Consuming more of a good increases your total utility by increasingly smaller amounts ↳ because marginal utility decreases each time ex : War eagle road · Consumer Equilibrium (CE) where the consumer maximizes : utility between goods ↳ relates to a particular point on the budget line Formula = : Method I good only tells you = - how much Utils/$ (utils per dollar Satisfaction for your buck" You get from each "ang I good ↳ dollar Spent ex : buy I coke a gas station & be you're thirsty let mu 12 utils is = p = $) from got how much satisfaction you spending $1 onape  ex : buyI coke of AU game utils uti = mu = 12. p = $6 increase in price > - decrease ini bad goods a O for goods more is better than less 2 ↳ therefore you pick the higer mulp between the 2 -more bang for back D us food o Auburn game e hotdog or hamburger hamburger = 10 utils p = , 2 $3 not dog 12 = = Utils D 12 utils 10 utils - 3 = 4 Uti/$ z = 5 Utils$ buy the hamburger 2 points : be there's > U/p 1. doesn't mean utility you ↳ even though much without a price wanted the not dog to go with it. Hot 2 dog because opportunity cost # 2 Choice) Consumer Equilibrium on Budget line the last unit bought of = each good has equal bang for buck ↳ given prices, budget , &  do this by spending our money until : - 1 our budget is spent. 2 Consumer equilibrium is reached bang for buck (mu/p) decreases as you your · buy more& of somethi ng · Oreo 10 utils 10Utils/100 100 ↓ = oreo 2 8 Utils 8 utils/10k 80Utils/$ = ore o 3 5 Utils SUtils/100 Souths/$ = Mu/p ↓ as Q you · Consumer equilibrium problem : 1. Get total utility from marginal utility. 2 Add prices budget to get mu/p ,. 3 Method : 9 fill out line #(across) b. choose higher mulp-> put in basket C. Compare one remaining to new one (because took the first one off the shelf you. & choose higher of 2 again - in basket put e. repeat until budget is spent mu /pi. mulpa = Let : Px $3 Coreos) Y stocking for storm = show Py = $4 (milk) Budget = $32 of Goal : find consumer equilibrium sum MsI mu Tomileilk Tureos Unitsoreos Muoreos Unitsmilk Mumile O - O - - I 30 utils 30 32 utils 32 3 Sutils = 24 utils SH 24/z S 24/4 24 4 11 11 "50 3 = = VI utils 79 i 70 46 21 213 = 7 'I 2014 = : 5 15 utils 98 1513 = 5" : 92 1614 = 4 "  5 1263 41/500 12 Utils 102 : 102 1014 = 2 5". 6 & utils Budget : $32 shelf 1 oreo $3)$29 = 1 milk (-$4) loveo$3) $ 22 : = #) 25 basket omm omo loreo-$3) $19 = 1 Misk($4) = $15 I milk-$4) = $11 Down with left loveo(-13) $8 = econ can be mill() $4 = lumpy loveo(-$3) = $ * always pick higher utility Goal was to spend all budget& 2 MAXUTILITY · compare what's left on shelf · Use Marginal utility , not TOTAL Utility · reality may have : some change leftover solution : & ores of $32 How much total utility was bought? Oreos : 102 His Any other combo will Milk give you less To : S TV & this is max utility  8 milk 8 endpoints : L Budget equilibrium price consumer 4 ---- - oreos $310 7. 's = · Reality : -many possibilities - often compare one good to all other goods (AOG) we ↳ difficult to analyze w numbers (but instinctive econ explains why humans do what they do - ex : food at Publix AOG PotatoChips us AOG Q C E spend most of ↳on =. budget other goods Q O in C ex : school budget QAOG 90 spent on food & -7590 of budget goes to AOG · Q Food · when prices go up , you're forced to buy less end point shifts end ex : all prices increase ·minea price Bp go inflation with same budget- > forced to buy less Inflation acts as a Qu tax because there's , get less available to spend 40 questions M/ A. B. C. D. A+ B E. none Homework 1 : first 7-8 questions relate to test