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Intro To Microeconomics Notes - Week One

by: Lauren Schaller

Intro To Microeconomics Notes - Week One Econ 201

Marketplace > Michigan State University > Economcs > Econ 201 > Intro To Microeconomics Notes Week One
Lauren Schaller

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The first week of notes for Microeconomics
Class Notes
Econ, supply, demand, price
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This 8 page Class Notes was uploaded by Lauren Schaller on Thursday June 23, 2016. The Class Notes belongs to Econ 201 at Michigan State University taught by Ballard in Summer 2016. Since its upload, it has received 6 views. For similar materials see Microeconomics in Economcs at Michigan State University.


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Date Created: 06/23/16
Micro Notes: INTRO TO MICROECONOMICS, September 3, 2014 What is Economics? a. Supply and Demand (same as economics) b. Behavior of people c. Trading/bartering-- money is not a necessity d. “Scarce resources employed for the satisfaction of people” - Scarcity is essential because everyone cannot have everything - Forces people to make choices e. “Production, distribution, consumptions” f. “Institutions” for those functions Micro vs. Macro a. Macro: Large economy b. Micro: Small economy, interactions that occur in the markets Scarcity a. Choice becomes necessary - What to produce? - How to produce it? b. Time is scarcity Opportunity Cost a. Cost of what is given up or lost b. Broadest measure of true cost c. Opportunity cost graph with grades and study hours - Line is called Production Possibility Function or Frontier - Options you face - Anything under the line (section A) is attainable (but inefficient), anything over is not - Under frontier= not using all resources d. What is the best option? - How does one decide? -- The “best” is determined by individual -- Different from person to person e. How might options be expanded? - More time, study sooner - Tutor - Study aid (change technology) -More resources f. Opportunity Cost of College Education - What to include: Tuition, fees, books, transportation, etc (foregone income) - Room and board is not included -Foregone income= income that could have been earned if not attending college Production Possibility Frontier Curved a. Under the line= Attainable, but not efficient (doesn’t use resources efficiently) b. On the line= Attainable and efficient c. Above the line= Not attainable - Economy doesn’t have enough resources, or technology wont let them use certain resources d. Cost of producing more of good X means producing less of good Y (vice versa) **Opportunity cost**- cost rises as we produce more goods e. With improvement of technology, production of good X gets better -- Can produce more of good X without losing as much of good Y f. More Resources -- Can produce more of everything than they could with fewer resources g. Area in between lines on the graph represents increase in production - Stuff you can produce now (options) that you couldn’t produce before Production Possibility Frontier Curved a. Straight Line - Represents a different kind of economy - Opportunity cost is ALWAYS constant in a straight lined graph (good X & Y) - Rare situation - Resources are perfectly adaptable and are equally suited for all goods Markets as a Choice of Mechanism a. Output (goods) markets b. Input (factors of production) markets c. Prices are established in markets Market Diagram a. Firms produce things to give to the households b. Households give firms money/revenue for the goods produced c. Households are giving firms inputs, and labor - Provide resources to the firms to produce the stuff d. Firms give households income e. Governments role? -- Producers: Government buys things - Sets the rules, collect taxes, education Pricing a. Microeconomics of markets = pricing b. Pricing Conundrums -Different prices for different consumers for the same product Micro Notes: SUPPLY AND DEMAND, September 3, 2014 1. Model - All simplified versions of something in reality - Simplification of all real markets 2. Demand - What consumers are willing and able to buy - WANT and AFFORD - Goal of consumers is to be as happy as possible -- Maximize utility (happiness) -- As much “satisfaction” as possible 3. What Influences Demand? - Price - Income or resources - Prices of other products (goods or services) - Taste or preferences -- Likes and dislikes can and will change over time - Expectations -- Ex. Do you expect your income to be higher? 4. Influence of Price - Inverse relationship between price and the quantity demanded (all else constant) -- Increase in price, decrease in quantity -- Decrease in price, increase in quantity - Why? - Substitution - Purchasing Power: Price goes down, one can afford more - New consumers: Price of something goes down a lot; new consumers will jump in and start buying that product 5. Law of Demand -- Ex. Coffee: Number of coffees per person per month -- Dollars/price of vertical axis -- Quantity of product on horizontal line -- Want demand curve to be negatively sloped (inverse relationship) -- Demand is not a quantity, but a relationship 6. Understanding Demand - Inverse relationship between Price and Quantity -- Negatively sloped function - Shows how much a consumer would pay for one more unit -- Marginal Value -- Each additional unit is worth less --“ The more you have of something, the less you value one more unit” - Supported by evidence 7. Influence of Income - Normal good: income and demand move together (buy more as get richer) -- Income increases, demand increases -- Income decreases, demand decreases -- Examples -- Clothes, vacation etc. - Inferior good: income and demand move in opposite directions -- Income increases, demand decreases -- Income decreases, demand increases - Examples -- Ramen noodles, Spam, cheap alcohol 8. Influences of other Prices - Substitutes: Goods consumed instead of each other -- Price of good X increases, demand for good Y increases -- Price of good X decreases, demand for good Y decreases -- Examples: Coke vs. Pepsi - Compliments: Goods consumed together -- Price of good X increases, demand for good Y decreases -- Price of good X decreases, demand for good Y increases -- Examples: Peanut butter & Jelly, Burgers and Buns, etc 9. Influence of Taste (preferences) - Changes in tastes shifts demand curve -- Like it more, increase in demand -- Like it less, decrease in demand - Advertising - Fads - What your friends say 10. Demand Terminology - “Demand” ≠ amount or quantity!!!!! -- Demand is a relationship between price and quantity - “Change in Demand”: Shift of demand curve -- Caused by change in income, other prices, tastes - “Change in Quantity demanded”: Movement along demand curve -- Caused by change in price - Increase in demand = shift curve to the right -- More is demanded at every price - Decrease in demand = shift curve to the left -- Less is demanded at every price 11. Does Demand Really Work? - Market for Reese’s today - How many would you buy if the price was: -- 10 cents, 25 cents, 50 cents, one dollar, two dollars? 12. Individual vs. Market Demand - Demand for the entire market is the sum of the demands for individual consumers 13. Supply - What producers are willing and able to supply - Ability to produce - Availability, resources, technology - Willingness to supply - Financial - Objectives of Suppliers: to maximize profit; difference between revenue and cost - Profit = Revenue - Cost - Profit = P * Q - [purchases of inputs] 14. Competitive Market Sellers - “Many” sellers, uniform product - How many? -- Enough so that sellers are price takers -- No influence on price through own consumption or production decisions -- Small relative to market - Take price as determined in the market and decide the quantity to supply in order to get the highest profit 15. What Influences Supply? - Price - Prices of inputs or factors of production - Technology (production methods) --PI = Revenue - Cost - Supply curve = positive slope 16. Influences of Price - Direct relationship between price and quantity supplied (all else constant) -- Price increases, Quantity supplied increases (all else constant) -- Price decreases, Quantity supplied decreases (all else constant) - Why higher price? -- More profit to be made -- Expansion; more investment -- Switch from other products or industries -- New firms 17. Influence of Input Prices - Increase in input prices = higher production costs -- Potentially lower profit -- Increase in input price, decrease in supply - Decrease in input prices = lower production costs -- Potentially higher profit -- Decrease in input price, increase in supply 18. Decrease in Price of Input? - Supply will increase -- Move supply curve to the right 19. Influence of Technology - “Improvement in technology” -- Produce the same quantity with fewer inputs (resources) -- Lower cost - Increase in supply 20. Supply Terminology - “Supply” ≠ an amount or quantity! - Supply is a relationship between price and quantity - “Change in supply” = shit of supply curve -- Caused by change in input prices, technology - “Change in quantity supplied” = movement along the supply curve -- Caused by change in price 21. Supply Terminology - Increase in supply = shift curve to the right -- More is supplied at every price - Decrease in supply = shift curve to the left -- Less is supplied at every price


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