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
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
