Lecture notes Principles of Microeconomics (ECON2017) Intermediate Microeconomics Copy text

Principle of Microeconomics – Lecture 1

 There are two basic postulates
o Rational choice: each person tries to choose the best alternative available to them
o Equilibrium: Market price adjusts until quantity demanded equals quantity supplied.
 Only those who are willing to pay the given market price will get the good/service
 Exogenous parameters in a micro model include: price, quantity and income
 If exogenous variables change than the equilibrium in the market will change accordingly
 Markets are not perfectly competitive
 In a perfect market neither actors involved (consumer/producer) can affect the price
 A perfectly monopolistic producer would control the supply, but also would be able to charge the maximum
price that each consumer is willing to pay
 Max prices are mechanisms which can be used to counter monopolistic producers
 Which market is better (in a normative sense) depends on who is asking the question
o The producer?
o The consumer?
o The government?
 Pareto efficient = the only way one person’s welfare can be improved is to lower another person’s welfare
