Microeconomics Lecture Notes

Introduction

John Gruber, lecturer for the microeconomics course.
Focus of today's lecture:
- Course details
- Definition of microeconomics
- Introduction to supply and demand

Policy angle: Economic policies and government policy are emphasized.
Teaching style:
- Notes not primarily written on the board; students responsible for lecture content.
- Encouragement to ask questions for clarity.
- Fast-paced speaking; questions are welcome and encouraged.
- Use of gender-neutral language; term "guys" refers to all individuals.

Definition: Study of individual and firm decision-making in a world of scarcity.
Key Concepts:
- Scarcity: Drives microeconomic decisions.
- Constrained Optimization: Economic agents aim to maximize well-being under constraints.
- Trade-offs: Every decision involves giving up alternatives.
- Opportunity Cost: Value of the next best alternative foregone when a choice is made.
Economics referred to as the "dismal science" due to the inherent trade-offs involved in any decision.

Connection between economics and engineering principles (constrained optimization).
Historical context: Modern economics developed at MIT by Paul Samuelson in the mid-20th century.

Introduction to the first model discussed in the course: Supply and Demand.
Supply and Demand Basics:
- Demand Curve: Represents the relationship between price and quantity demanded (downward sloping).
- Supply Curve: Represents the relationship between price and quantity supplied (upward sloping).
- Market Equilibrium: Point where supply and demand curves intersect, indicating the price at which consumers and producers are satisfied.

Water-Diamond Paradox: Explains why necessities (water) are cheap, while luxuries (diamonds) are expensive due to supply and demand dynamics.
Requires consideration of both supply and demand to understand market phenomena.

Positive Analysis: Examines how things are (e.g., auction dynamics of kidney sales).
Normative Analysis: Discusses how things should be (e.g., ethical considerations of selling organs).
Example: Kidney auction on eBay raised questions about market functioning and ethical implications.

Market Failures: Situations where the market does not allocate resources efficiently (e.g., fraud, imperfect information).
Equity Concerns: Social equity may be compromised in a purely market-driven economy.
Discusses the balance between the freedom of a capitalist economy and the regulation needed to prevent failures and inequality.

Capitalistic Economy: Individuals and firms decide what to produce and consume, with minimal government intervention but some rules to prevent fraud.
Command Economy: Government centrally makes all production and consumption decisions, often leading to inefficiencies and corruption.

Concept that individuals pursuing their own self-interest results in societal benefits through market equilibrium.
Emphasis on maximizing surplus as a measure of societal benefit.

Course to cover key topics such as utility maximization, supply, market equilibrium, and market failures.
Weekly problem sets assigned, with sections dedicated to practice and new material.

Encouragement to engage with the material and ask questions in upcoming lectures.