Microeconomics notes
Tuesdays and Thursdays 4:30-5:45
Lecture 1: 1/14:
● Microeconomics is the study of efficient allocation of scarce resources
● It is the study of the choices we make in order to allocate scarce resources
● Factors of production: land, labor, capital, and entrepreneurship
○ Land leads to rent
○ Labor leads to wages
○ Capital leads to interest
○ Entrepreneurship leads to profit
● After paying for rent, wages, and interest, the money left over is the profit
● There needs to be the right amount of resources allocated in order to produce
something
● Basic assumptions:
○ Rationality
○ Self interest
○ People respond to incentives
● Incentives: consequences and rewards that inform and motivate our decisions
● Marginal analysis: MC=MB (Marginal cost = marginal benefit), so they are equal
● Choosing at the margin means comparing the marginal benefit to the marginal cost,
when making a decision
● Opportunity cost: The highest valued alternative (highest valued forgone opportunity)
Textbook notes: Chapter 1: What is Economics?
● Economics is the study of efficient allocation of limited resources (based on unlimited
wants, and limited resources)
● Goods and services are the objects that people value to satisfy their wants. Goods are
physical objects, services are tasks done by people
● The resources we use to produce goods and services are called factors of production.
These are: land, labor, capital, and entrepreneurship
● Land: natural resources that we use in order to produce
● Labor: The time spent working, and the effort spent working is called labor. Labor
includes all physical and mental efforts from people
● The quality of the labor, depends on human capital, which are the skills and
knowledge people gain from education and work experience
● Capital: The tools, instruments, machinery, buildings, and other constructions that
businesses use to produce goods and services
● Entrepreneurship: The human resource that organizes labor, land, and capital.
● People make choices in self-interest if they think that the choice is the best possible
available for them. You are doing something because you want to do it, not because of
how it serves other individuals
, ● Efficiency: A resource is allocated efficiently, if it is not possible to make someone
better off without making someone else worse off
● Globalization: means the expansion of international trade, borrowing and lending, and
investment
● A tradeoff is an exchange. Giving something up, to get something else in return
● A rational choice is one that compares costs and benefits, and achieves the greatest
benefit, over cost, for the person making the choice
● A benefit, is determined by preferences
● Whenever you make a choice, you are choosing at the margin. The benefit you reap
is called the marginal benefit
● An economic model, is a description of some aspect of the economic world, that
includes only those features that are needed for the purpose at hand
● For graphing, a relationship between two variables that move in the same direction, is
called a positive relationship, or direct relationship
● A relationship shown by a straight line, is called a linear relationship
● A relationship shown between variables that move in the opposite direction, is called
a negative relationship, or an inverse relationship
● Variables with a minimum and a maximum: a number of variables have a minimum
and a maximum, and these are shown as inverses. A variable with a minimum is
shown as a U shape, while a variable with a maximum is shown as an n shape
● Variables that are unrelated to one another are shown as straight vertical, or straight
horizontal, depending on which variable is unrelated. Unrelated y constant, means
slope is zero, unrelated x constant means slope is undefined
● The slope of a relationship, is the change in the y-variable / the change in the x
variable
● Positive slope - upward sloping
● Negative slope - downward sloping
● Ceteris Paribus: means, “if all other relevant things remain the same.”
● A linear equation describes a straight line relationship between x and y. It is y=a+bx
● Make sure I can easily plot data points on a graph, and figure out curves from points
Textbook notes: Chapter 2: The Economic Problem
● The production possibilities frontier (PPF), is the boundary between those
combinations of goods and services that can be produced, and those that cannot
● Production efficiency: means that goods and services are produced at the lowest
possible cost
● Tradeoff along the PPF: a choice along the PPF involves a tradeoff
● Opportunity cost: the opportunity cost of an action, is the highest valued alternative
forgone
● Marginal benefit: the benefit from a good or service, is the benefit received from
consuming one or more unit of it
Tuesdays and Thursdays 4:30-5:45
Lecture 1: 1/14:
● Microeconomics is the study of efficient allocation of scarce resources
● It is the study of the choices we make in order to allocate scarce resources
● Factors of production: land, labor, capital, and entrepreneurship
○ Land leads to rent
○ Labor leads to wages
○ Capital leads to interest
○ Entrepreneurship leads to profit
● After paying for rent, wages, and interest, the money left over is the profit
● There needs to be the right amount of resources allocated in order to produce
something
● Basic assumptions:
○ Rationality
○ Self interest
○ People respond to incentives
● Incentives: consequences and rewards that inform and motivate our decisions
● Marginal analysis: MC=MB (Marginal cost = marginal benefit), so they are equal
● Choosing at the margin means comparing the marginal benefit to the marginal cost,
when making a decision
● Opportunity cost: The highest valued alternative (highest valued forgone opportunity)
Textbook notes: Chapter 1: What is Economics?
● Economics is the study of efficient allocation of limited resources (based on unlimited
wants, and limited resources)
● Goods and services are the objects that people value to satisfy their wants. Goods are
physical objects, services are tasks done by people
● The resources we use to produce goods and services are called factors of production.
These are: land, labor, capital, and entrepreneurship
● Land: natural resources that we use in order to produce
● Labor: The time spent working, and the effort spent working is called labor. Labor
includes all physical and mental efforts from people
● The quality of the labor, depends on human capital, which are the skills and
knowledge people gain from education and work experience
● Capital: The tools, instruments, machinery, buildings, and other constructions that
businesses use to produce goods and services
● Entrepreneurship: The human resource that organizes labor, land, and capital.
● People make choices in self-interest if they think that the choice is the best possible
available for them. You are doing something because you want to do it, not because of
how it serves other individuals
, ● Efficiency: A resource is allocated efficiently, if it is not possible to make someone
better off without making someone else worse off
● Globalization: means the expansion of international trade, borrowing and lending, and
investment
● A tradeoff is an exchange. Giving something up, to get something else in return
● A rational choice is one that compares costs and benefits, and achieves the greatest
benefit, over cost, for the person making the choice
● A benefit, is determined by preferences
● Whenever you make a choice, you are choosing at the margin. The benefit you reap
is called the marginal benefit
● An economic model, is a description of some aspect of the economic world, that
includes only those features that are needed for the purpose at hand
● For graphing, a relationship between two variables that move in the same direction, is
called a positive relationship, or direct relationship
● A relationship shown by a straight line, is called a linear relationship
● A relationship shown between variables that move in the opposite direction, is called
a negative relationship, or an inverse relationship
● Variables with a minimum and a maximum: a number of variables have a minimum
and a maximum, and these are shown as inverses. A variable with a minimum is
shown as a U shape, while a variable with a maximum is shown as an n shape
● Variables that are unrelated to one another are shown as straight vertical, or straight
horizontal, depending on which variable is unrelated. Unrelated y constant, means
slope is zero, unrelated x constant means slope is undefined
● The slope of a relationship, is the change in the y-variable / the change in the x
variable
● Positive slope - upward sloping
● Negative slope - downward sloping
● Ceteris Paribus: means, “if all other relevant things remain the same.”
● A linear equation describes a straight line relationship between x and y. It is y=a+bx
● Make sure I can easily plot data points on a graph, and figure out curves from points
Textbook notes: Chapter 2: The Economic Problem
● The production possibilities frontier (PPF), is the boundary between those
combinations of goods and services that can be produced, and those that cannot
● Production efficiency: means that goods and services are produced at the lowest
possible cost
● Tradeoff along the PPF: a choice along the PPF involves a tradeoff
● Opportunity cost: the opportunity cost of an action, is the highest valued alternative
forgone
● Marginal benefit: the benefit from a good or service, is the benefit received from
consuming one or more unit of it
