Principles of Economics:
Microeconomics – Econ Final
Study Guide – University Level –
Comprehensive Lecture and
Ex am Preparation N otes (2 0 2 5 )
, lOMoARcPSD|57877581
● Consumption goods (something that can be used) vs. investment goods (good you
purchase w/ intention of selling when it has greater value)
○ Art is an example of both
● Coase conjecture- a monopolist has a durable good but faces consumers who will wait
for price to be lowered. Can’t monopolize it unless they can assure the price won’t be
lowered in the future.
● Death effect- the price of an artists’ art goes up after they die, goes up the most mid-
career
● Moral hazard- art is fully insured, person who owns it doesn't have incentive to protect it
because if lost or stolen, it can be replaced
● Baumol’s disease- in industries where you cannot substitute labor for a machine (artist
for machine), productivity doesn’t go up as fast, why museums struggle
● Why is the president of a school have the second highest salary? The football coach has
the highest because the supply of presidents is greater than the supply of talented
coaches. Also a quantitative measure for football coaches (win-loss score)
Econ Minutes
1. Fines: Affects behavior at the margin, lump-sum fine has no incentive no to rush to pay if
al
a. Lump-sum -Fine stays the same no matter what
b. Function of Time - Later you are, higher penalty
2. Fracking - Technology of extracting oil and gas from shale instead of drilling into Earth
a. Lowered dependence of US on ME oil, losing ME billions of dollars, and lowered
price of crude oil
b. Private Property led private entrepreneurs to discover fracking
i. US, allowed to own what’s under ground, keep what they earn, got
venture capital from markets.
3. Sports in Economic View
a. You have some sort of league that attracts an audience and you sell advertising
slots to marketers
4. Economists have preferences, psychologists have attitudes.
5. Left-Digit Bias - The digit on the very left of a number creates a huge difference
(Psychology)
a. Cars: 78,900 - 79,000 on odometer is only $10 difference in price of a used car
while a 79,900 - 80,000 on odometer is a $210 difference in price.
b. Why stores put $7.99 instead of $8.00 because 7 is less than 8
c. Hawthorn Effect - People behave differently because they know they are being
studied
6. Implicit Costs:
a. Search Costs - Optimal amount of time looking for a product/service
i. Opportunity cost of time
ii. If search costs are high, don’t look as much
, lOMoARcPSD|57877581
b. Transaction Cost - Cost incurred in making an economic exchange
i. Labor required to bring a good or service to the market
ii. Commission & closing costs, fees, etc.
7. Grocery Stores have retail space (shelf), eye level spaces rent for more than lower or
higher ones
a. In economic view, grocery stores are enterprises that rent shelf space.
8. Economic Markets vs. Political Markets
a. PM is allocating political leaders in a democracy
b. EM (organized common sense) is voting dollars for a good or service while PM is
voting for candidates
c. EM allows for several different competitors to exist at any given time while PM is
one competitor wins, all others leave market for the interval.
d. EM allows consumers to consume from 2 or more competitors simultaneously
while PM can only consume from 1.
e. EM has way more dollar votes that aren’t allowed in PM (Under 18 can’t
politically vote; legal troubled people can’t politically vote, but both can
economically, aka more restrictions in PM)
f. EM holds consumers to choice more after choice is made than PM (Can’t hold
political candidate to contract)
i. Can sue in EM, can’t really sue in PM
g. PM barriers to entry are higher and more strict than EM
h. B/c gov. Is large, incentive to spend money on campaigns b/c control access to
market.
i. Both markets cast votes as an INDIVIDUAL
9. Expressive Behavior - A person finds utils to express his or herself in a certain manner
a. How they want to identify themselves, particularly in front of others.
b. Voting expresses oneself as a participating system, finds value as belonging to a
democratic election.
c. Rolex expresses something beyond just Time
10. Commitment Devices are based on 2 principles of behavioral economics
a. People often don’t do what they say (New Years Resolutions rarely come
through)
b. Incentives change behavior
c. Examples: Homer and Odyssey (Sirens on Island, told to disregard orders),
Cortez in Mexico (Destroyed ships so there’s no turning back)
d. If you violate, you don’t get reward, and reward goes to cost
11. Happiness Variables
a. “Money doesnt buy happiness” but advertising leads us to believe it does
b. Genetics (40%) - Out of our control
c. Circumstances/luck (30%) - Out of our control
d. Decisions; Lifestyle (30%) - In our Control
e. Unemployed means someone who doesn’t have a job and is looking for one
f. Higher commuting time to work
g. Countries are creating happiness indexes.
Microeconomics – Econ Final
Study Guide – University Level –
Comprehensive Lecture and
Ex am Preparation N otes (2 0 2 5 )
, lOMoARcPSD|57877581
● Consumption goods (something that can be used) vs. investment goods (good you
purchase w/ intention of selling when it has greater value)
○ Art is an example of both
● Coase conjecture- a monopolist has a durable good but faces consumers who will wait
for price to be lowered. Can’t monopolize it unless they can assure the price won’t be
lowered in the future.
● Death effect- the price of an artists’ art goes up after they die, goes up the most mid-
career
● Moral hazard- art is fully insured, person who owns it doesn't have incentive to protect it
because if lost or stolen, it can be replaced
● Baumol’s disease- in industries where you cannot substitute labor for a machine (artist
for machine), productivity doesn’t go up as fast, why museums struggle
● Why is the president of a school have the second highest salary? The football coach has
the highest because the supply of presidents is greater than the supply of talented
coaches. Also a quantitative measure for football coaches (win-loss score)
Econ Minutes
1. Fines: Affects behavior at the margin, lump-sum fine has no incentive no to rush to pay if
al
a. Lump-sum -Fine stays the same no matter what
b. Function of Time - Later you are, higher penalty
2. Fracking - Technology of extracting oil and gas from shale instead of drilling into Earth
a. Lowered dependence of US on ME oil, losing ME billions of dollars, and lowered
price of crude oil
b. Private Property led private entrepreneurs to discover fracking
i. US, allowed to own what’s under ground, keep what they earn, got
venture capital from markets.
3. Sports in Economic View
a. You have some sort of league that attracts an audience and you sell advertising
slots to marketers
4. Economists have preferences, psychologists have attitudes.
5. Left-Digit Bias - The digit on the very left of a number creates a huge difference
(Psychology)
a. Cars: 78,900 - 79,000 on odometer is only $10 difference in price of a used car
while a 79,900 - 80,000 on odometer is a $210 difference in price.
b. Why stores put $7.99 instead of $8.00 because 7 is less than 8
c. Hawthorn Effect - People behave differently because they know they are being
studied
6. Implicit Costs:
a. Search Costs - Optimal amount of time looking for a product/service
i. Opportunity cost of time
ii. If search costs are high, don’t look as much
, lOMoARcPSD|57877581
b. Transaction Cost - Cost incurred in making an economic exchange
i. Labor required to bring a good or service to the market
ii. Commission & closing costs, fees, etc.
7. Grocery Stores have retail space (shelf), eye level spaces rent for more than lower or
higher ones
a. In economic view, grocery stores are enterprises that rent shelf space.
8. Economic Markets vs. Political Markets
a. PM is allocating political leaders in a democracy
b. EM (organized common sense) is voting dollars for a good or service while PM is
voting for candidates
c. EM allows for several different competitors to exist at any given time while PM is
one competitor wins, all others leave market for the interval.
d. EM allows consumers to consume from 2 or more competitors simultaneously
while PM can only consume from 1.
e. EM has way more dollar votes that aren’t allowed in PM (Under 18 can’t
politically vote; legal troubled people can’t politically vote, but both can
economically, aka more restrictions in PM)
f. EM holds consumers to choice more after choice is made than PM (Can’t hold
political candidate to contract)
i. Can sue in EM, can’t really sue in PM
g. PM barriers to entry are higher and more strict than EM
h. B/c gov. Is large, incentive to spend money on campaigns b/c control access to
market.
i. Both markets cast votes as an INDIVIDUAL
9. Expressive Behavior - A person finds utils to express his or herself in a certain manner
a. How they want to identify themselves, particularly in front of others.
b. Voting expresses oneself as a participating system, finds value as belonging to a
democratic election.
c. Rolex expresses something beyond just Time
10. Commitment Devices are based on 2 principles of behavioral economics
a. People often don’t do what they say (New Years Resolutions rarely come
through)
b. Incentives change behavior
c. Examples: Homer and Odyssey (Sirens on Island, told to disregard orders),
Cortez in Mexico (Destroyed ships so there’s no turning back)
d. If you violate, you don’t get reward, and reward goes to cost
11. Happiness Variables
a. “Money doesnt buy happiness” but advertising leads us to believe it does
b. Genetics (40%) - Out of our control
c. Circumstances/luck (30%) - Out of our control
d. Decisions; Lifestyle (30%) - In our Control
e. Unemployed means someone who doesn’t have a job and is looking for one
f. Higher commuting time to work
g. Countries are creating happiness indexes.
