Microeconomics Lecture Notes

Introduction

Instructor: John Gruber
Course Focus: Microeconomics
Topics Covered: Course details, Definition of Microeconomics, Supply and Demand Model

Policy Angle: Emphasis on economic policy; understanding why economics matters and its real-world applications.
Future Courses: More depth on policy issues available in course 1441 (taught by Kristen Butcher).
Teaching Style:
- Focus on verbal explanations rather than board notes.
- Encouragement to ask questions if anything is unclear.
- Fast-paced; questions help manage the speed of the lecture.
- Use of "guys" in a gender-neutral way.

Definition: Study of how individuals and firms make decisions under conditions of scarcity.
Key Concepts:
- Scarcity: Fundamental driving force in microeconomics.
- Constrained Optimization: Economic agents try to maximize welfare given constraints.
- Opportunity Cost: Every action has a cost associated with the next best alternative.
- Economics often referred to as the "Dismal Science" due to the trade-off nature of choices.

Introduction: Key to understanding market dynamics.
Basic Principles:
- Models: Simplified representations that may not be perfectly accurate, but provide useful insights.
- Graphical Representation: Most models developed in an XY graph format.
- Understanding Levels: Intuitive, graphical, and mathematical levels of comprehension.

Example: Water is essential yet cheap; diamonds are frivolous yet expensive.
Explanation: Demand for water is high, supply is abundant; demand for diamonds is lower, supply is limited.

Market Equilibrium: Where supply and demand curves intersect; price and quantity where consumers and producers are satisfied (e.g., roses example).
Demand Curve: Downward sloping; as price increases, quantity demanded decreases.
Supply Curve: Upward sloping; as price increases, quantity supplied increases.

Positive Analysis: Examines facts and relationships as they are.
Normative Analysis: Discusses how things should be; involves value judgments.
Example: Kidney auction on eBay raises questions of legality (normative) vs. market dynamics (positive).

Types of Market Failures:
- Fraud: Potential for scams in unregulated markets.
- Imperfect Information: Lack of knowledge can lead to poor decision-making.
- Equity Concerns: Disparities can arise from free markets; fairness in distribution of resources.
- Behavioral Economics: People may make irrational choices, not aligning with standard economic predictions.

Capitalistic Economy: Individuals and firms decide production and consumption, leading to economic growth but potential inequities.
Command Economy: Government makes all economic decisions, which can lead to inefficiencies and corruption.
The Invisible Hand: Adam Smith's concept that individuals pursuing their self-interest can lead to societal benefits.

Upcoming Topics: Demand decisions, firm production choices, market equilibrium, imperfections in markets.
Problem Sets: Weekly problem sets will be based on materials covered in class.
Section Meetings: Combination of new material and practice problems, with a focus on mathematical representation in economics.