Crash Course Economics: Introduction to Microeconomics

Hosts

• Jacob Clifford
• Adriene Hill

Topics Covered

• Distinction between microeconomics and macroeconomics
• Introduction to marginal analysis
• Utility and the law of diminishing marginal utility
• Supply and demand model
• Elasticity of demand and supply

Key Concepts

Microeconomics vs Macroeconomics

• Macroeconomics: Focuses on GDP, unemployment, fiscal and monetary policies.
• Microeconomics: Looks at individual markets and decision-making by consumers, businesses, and governments.
  • Examples: Hiring decisions, minimum wage, healthcare costs.

Marginal Analysis

• Definition: Examines additional benefits and costs of decisions.
• Application:
  • Businesses compare additional revenue against additional costs (e.g., hiring workers).
  • Governments consider additional benefits vs costs in public projects (e.g., city parks).
• Law of Diminishing Marginal Utility:
  • The additional satisfaction decreases as consumption increases.
  • Utilizes the concept of 'utils' to quantify satisfaction.

Thought Bubble Example

• Amusement park behavior explained by marginal analysis.
• Pricing strategies: Buy two, get the third half off exploit diminishing utility.

Supply and Demand Model

• Demand Curve: Downward sloping due to the law of diminishing marginal utility.
• Supply Curve: Upward sloping due to the law of supply.
• Equilibrium: Where marginal benefit equals marginal cost.
  • Illustrates efficient market resource allocation.

Diamond-Water Paradox

• Explained using marginal utility and scarcity.
• Total utility vs marginal utility.

Elasticity of Demand and Supply

• Demand Elasticity:
  • Inelastic Demand: Few substitutes, quantity demanded not sensitive to price changes (e.g., gasoline, electricity, healthcare).
  • Elastic Demand: Many substitutes, quantity demanded sensitive to price changes (e.g., pizza).
• Supply Elasticity:
  • Inelastic Supply: Hard to increase quantity even if price rises (e.g., airplanes, Van Gogh paintings).
  • Elastic Supply: Easy to change quantity with price changes (e.g., t-shirts, strawberries).

Conclusion

• Microeconomics focuses on detailed analysis rather than broad economic indicators like GDP.
• Understanding marginal analysis and elasticity helps in making better decisions.

Final Thoughts

• The benefit of watching this session outweighs the cost.
• Support and additional content available through Patreon.