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Microeconomics Week 1 Notes

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by: Cindy Notetaker

Microeconomics Week 1 Notes Econ-UA

Marketplace > New York University > Econ-UA > Microeconomics Week 1 Notes
Cindy Notetaker
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These notes cover Chapters 1-3 covered in class as well as general introduction. I hope you find them helpful!
Introduction to Microeconomics
Professor Bhiladwalla
Class Notes
Microeconomics, Economics




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This 6 page Class Notes was uploaded by Cindy Notetaker on Thursday September 8, 2016. The Class Notes belongs to Econ-UA at New York University taught by Professor Bhiladwalla in Fall 2016. Since its upload, it has received 396 views.


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Date Created: 09/08/16
September 6th, 2016 Introduction Chapters 1&2: Why study economics?? it teaches us to make choices (both time and monetary resources are limited) given scarce resources (time and money) and technology example 1: You have a to-do weekend list -Ski trip -Catch up on sleep -Study for test -Visit grandma Resource constraint: TIME Choices under conditions of resource scarcity --the concept of OPPORTUNITY COST **most fundamental concept** Back to example: you choose (c) study for exam --What is opportunity cost? Everything on the list? The value of the NEXT BEST alterna- tive Answer: ski trip Explicit vs Implicit Opportunity Cost Explicit: you can see it, monetary cost ex. Cup of coffee Implicit: ex. Ski trip If time and resources were not scarce, the concept of OC would not even exist and economics would not exist Society faces a scarcity of resources: Categories of Resources: --Labor: providing a service, using time and energy such as teaching --Capital: goods produced that are used to produce other things -can be machines (like computers) or human capital (training skills) --Land: natural resources; physical space on which structures are built --Entrepreneurship: basic function is combining all the above factors to produce the good or services -innovates: if there's a lot of competition, in order to keep making money must continually innovate to beat competitors -taking risks: necessary *society must decide on HOW it will ALLOCATE it's scarce resources between COMPETING wants* Chapter 2 Ex: choice between National Defense (tanks) & Civilian Goods (wheat) Given technology, how does society decide how much to allocate between two competing wants, tanks and wheat? -the more you produce or tanks (x axis) the less you procure of wheat (y axis) -either you produce only tanks, wheat, or a combination of both -once you figure out all possible combinations: you get a production possibility fron- tier (PPF) --a smooth curve on the graph once you connect all the dots --shows all combinations of 2 goods that can be produced with a given amount of resources and a given technology --all points on the PPF are attainable choices --POINT W: unattainable points would be above the graph, points underneath the curve means that you are not using all given resources OR inefficient utilization of resources (mismatching skills to job) Can we read 'opportunity cost' from PPF ? YES -it's the vertical drop between points moving from left to right (if you increase in tanks, then you LOSE more weight) -this vertical drop is INCREASING for every additional 1000 tanks that are produced -this means that the opportunity cost is increasing (the slope gets steeper and steeper) Law of Increasing Cost : Given resources and technology OC of a good increases as society produces more and more of it---PPF is blowed out An increasing slope of the PPF---depiction of the law of increasing opportunity cost (OC) Why does it increase? Why is the slope not constant? --some resources are better suited for other things --in this example maybe resources are better suited to producing wheat than tanks, and therefore to get the that additional 1,000 tanks you're going to need much more resources Do ALL goods have an OC? YES ex.--Google, Yahoo, free lunches? ALL HAVE OC, like the resources (explicit costs), people working at Yahoo or Google, food used to make lunches, etc... REFER BACK TO GRAPH 1 Productive efficiency vs productive inefficiency (point W) Ex. Economy operates INSIDE the PPF during a recession A PPF can shift --changes in technology --natural disasters --education ECONOMIC SYSTEMS -refers to the way our economy is organized; differed amongst countries -referring to the way production is organized in different countries/societies, the way resources are allocated Ex. In US it is a Free Market Economy: owned by individuals, less resource allocation decisions -features: specialization --each person focuses on a limited number of tasks in production --you only want to produce what you enjoy doing In order to meet your other needs.... -exchange: an act of trading with others --you may need food in the morning, a toothbrush or comb and you cannot produce all of those things Gains of Specialization: -expertise development=increased productivity --if each person specialized in just ONE task, each can produce as much as pos- sible -minimized downtime involved in switching tasks --save time in switching from task to task to produce a product -comparative advantage** **these advantages lead to a HIGHER standard of living** Comparative Advantage labor required for: 1 fish I cup of berries Maryanne 1 hr 1 hr Gilligan 3 hrs 1 1/2 hrs Maryanne has ABSOLUTE advantage Maryanne's OC of:
 1 cup of berries=1 fish 1 fish=1 cup of berries
 Gilligan's OC of:
 1 cup of berries=1/2 a fish 1 fish=2 cups of berries
 Maryanne has a comparative advantage for making fish Gilligan has comparative advantage in berries **we figure out comparative advantage by finding the opportunity costs** If they specialize in whatever they have a comparative advantage in, society will produce more and therefore benefit --Maryanne makes one more fish (one less cup of berries) per hour --Gilligan makes two more cups of berries (because he already had the one cup of berries in the 1 1/2 hrs) HOW SHOULD SOCIETY ALLOCATE ITS LIMITED RESOURCES? - -it means what goods and services to produce -where on the PPF should the economy target - (wheats, tanks, combination?) - -how should they be produced? -combo of capital and labor to use -(catch fish with bare hands, net, boat?) - -who should get them? -distribution of goods/services produced The US is largely (not a pure) market based economy -in which you can decide what you want to do -not a centrally planned/command economy -millions of individual producers Why is there no chaos given all the individual producers? --MARKET PRICES (not artificially set prices by some authority) --this is what helps coordination What is a market? --may have physical location --maybe through phone/internet a defining feature of any market: PRICE (P) P=amount of money paid to a seller for a good, service, or resource What does price do? It helps the entrepreneur attain information and how to make future deci- sion regarding goods and services --prices incorporate opportunity cost (OC) -ex) price of a TV set is $500: this means resources sacrificed to make this a TV set is $500 suppose it is free: too many sets would be produced and there would be little resources left for other goods Chapter 3 Definition of a market --a collection of buyers who demand goods and sellers who supply goods --they come together in a market place to trade goods/services at a price Microeconomics involves: aggregating markets with goods and services with a commonality In a market... perfect vs. imperfect competition - -perfect: many sellers, the good is a standardized product at least in the eyes of the consumer, no power over price -ex) if there are thousands of suppliers in the wheat market, the market share for each seller is very small --imperfect: few sellers -ex) in the US auto market, not as many suppliers and so market share is larger ; this then gives them the power to change prices


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