Summary Microeconomics, Institutions and Welfare
2023-2024.
Unit 2: Technology, population, and growth
General-purpose innovation/technology = Technological advances that can be applied to many
sectors, and spawn further innovations. Information and communications technology (ICT), and
electricity are two common examples.
Flow = A quantity measured per unit of time, such as annual income or hourly wage.
Equilibrium = A model outcome that is self-perpetuating. In this case, something of interest does not
change unless an outside or external force is introduced that alters the model’s description of the
situation.
Subsistence level = The level of living standards (measured by consumption or income) such that the
population will not grow or decline.
Ceteris paribus = Economists often simplify analysis by setting aside things that are thought to be of
less importance to the question of interest. The literal meaning of the expression is ‘other things
equal’. In an economic model it means an analysis ‘holds other things constant’.
Incentives = Economic reward or punishment, which influences the benefits and costs of alternative
courses of action.
Relative prices = The price of one good or service compared to another (usually expressed as a ratio).
Economic rent = A payment or other benefit received above and beyond what the individual would
have received in his or her next best alternative (or reservation option).
Economic rent = benefit from option taken – benefit from next best option (reservation option)
Isocost lines = A line that represents all combinations that cost a given total amount.
Y = a + bx
a = waar de lijn de verticale as raakt
b = slope of the isocost line = -(w/p)
MRS = slope of the budget/isocost line = wage (for example)
Feasible frontier = MRT = budgetline
Profit = revenue – costs
Creative destruction = Joseph Schumpeter’s name for the process by which old technologies and the
firms that do not adapt are swept away by the new, because they cannot compete in the market. In
his view, the failure of unprofitable firms is creative because it releases labour and capital goods for
use in new combinations.
Factors of production = The labour, machinery and equipment (usually referred to as capital), land,
and other inputs to a production process.
,Average product = Total output divided by a particular input, for example per worker (divided by the
number of workers) or per worker per hour (total output divided by the total number of hours of
labour put in).
Two key ideas in Malthus’ model are:
- The law of diminishing average product of labour
- Population expands if living standards increase
Diminishing average product of labour = A situation in which, as more labour is used in a given
production process, the average product of labour typically falls.
Innovation rents = Profits in excess of the opportunity cost of capital that an innovator gets by
introducing a new technology, organizational form or marketing strategy.
Unit 3: Scarcity, work, and choice
Production function = A graphical or mathematical expression describing the amount of output that
can be produced by any given amount or combination of input(s). The function describes differing
technologies capable of producing the same thing.
Marginal product = The additional amount of output that is produced if a particular input was
increased by one unit, while holding all other inputs constant.
Concave function = A function of two variables for which the line segment between any two points on
the function lies entirely below the curve representing the function (the function is convex when the
line segment lies above the function).
Tangent = When two curves share one point in common but do not cross. The tangent to a curve at a
given point is a straight line that touches the curve at that point but does not cross it.
Utility = A numerical indicator of the value that one places on an outcome, such that higher valued
outcomes will be chosen over lower valued ones when both are feasible.
Maximizing utility:
MRS = Px / Py
MRS = MUx / MUy
Vervolgens de waarde van y invullen in de budget constraint om te weten wat x is
Hierna deze waarde van x weer invullen om te weten wat het y coördinaat is
Indifference curve = A curve of the points which indicate the combinations of goods that provide a
given level of utility to the individual.
, Marginal rate of substitution (MRS) = The trade-off that a person is willing to make between two
goods. At any point, this is the slope of the indifference curve.
Opportunity costs = When taking an action implies forgoing the next best alternative action, this is
the net benefit of the foregone alternative.
Economic cost = The out-of-pocket cost of an action, plus the opportunity cost.
Feasible frontier = The curve made of points that defines the maximum feasible quantity of one good
for a given quantity of the other.
Marginal rate of transformation (MRT) = The quantity of some good that must be sacrificed to acquire
one additional unit of another good. At any point, it is the slope of the feasible frontier.
The slope of the indifference curve is the MRS.
The slope of the frontier is the MRT.
Constrained choice problem = This problem is about how we can do the best for ourselves, given our
preferences and constraints, and when the things we value are scarce.
Budget constraint = An equation that represents all combinations of goods and services that one
could acquire that exactly exhaust one’s budgetary resources.
Budget constraint = wordt vaak geschreven als c=w(24-t)
Your optimal combination of consumption and free time is the point on the budget constraint where:
MRS = MRT=𝑤
Income effect = The effect that the additional income would have if there were no change in the price
or opportunity cost.
Substitution effect = The effect that is only due to changes in the price or opportunity cost, given the
new level of utility.
Voorbeeld:
A wage rise:
raises your income for each level of free time, increasing the level of utility you can achieve
increases the opportunity cost of free time
So it has two effects on your choice of free time:
The income effect (because the budget constraint shifts outwards): the effect that the
additional income would have if there were no change in the opportunity cost.
The substitution effect (because the slope of the budget constraint, the MRT, rises): the effect
of the change in the opportunity cost, given the new level of utility.
Conspicuous consumption = The purchase of goods or services to publicly display one’s social and
economic status.
Unit 4: Social interactions
Social interactions = Situations in which the actions taken by each person affect other people’s
outcomes as well as their own.
2023-2024.
Unit 2: Technology, population, and growth
General-purpose innovation/technology = Technological advances that can be applied to many
sectors, and spawn further innovations. Information and communications technology (ICT), and
electricity are two common examples.
Flow = A quantity measured per unit of time, such as annual income or hourly wage.
Equilibrium = A model outcome that is self-perpetuating. In this case, something of interest does not
change unless an outside or external force is introduced that alters the model’s description of the
situation.
Subsistence level = The level of living standards (measured by consumption or income) such that the
population will not grow or decline.
Ceteris paribus = Economists often simplify analysis by setting aside things that are thought to be of
less importance to the question of interest. The literal meaning of the expression is ‘other things
equal’. In an economic model it means an analysis ‘holds other things constant’.
Incentives = Economic reward or punishment, which influences the benefits and costs of alternative
courses of action.
Relative prices = The price of one good or service compared to another (usually expressed as a ratio).
Economic rent = A payment or other benefit received above and beyond what the individual would
have received in his or her next best alternative (or reservation option).
Economic rent = benefit from option taken – benefit from next best option (reservation option)
Isocost lines = A line that represents all combinations that cost a given total amount.
Y = a + bx
a = waar de lijn de verticale as raakt
b = slope of the isocost line = -(w/p)
MRS = slope of the budget/isocost line = wage (for example)
Feasible frontier = MRT = budgetline
Profit = revenue – costs
Creative destruction = Joseph Schumpeter’s name for the process by which old technologies and the
firms that do not adapt are swept away by the new, because they cannot compete in the market. In
his view, the failure of unprofitable firms is creative because it releases labour and capital goods for
use in new combinations.
Factors of production = The labour, machinery and equipment (usually referred to as capital), land,
and other inputs to a production process.
,Average product = Total output divided by a particular input, for example per worker (divided by the
number of workers) or per worker per hour (total output divided by the total number of hours of
labour put in).
Two key ideas in Malthus’ model are:
- The law of diminishing average product of labour
- Population expands if living standards increase
Diminishing average product of labour = A situation in which, as more labour is used in a given
production process, the average product of labour typically falls.
Innovation rents = Profits in excess of the opportunity cost of capital that an innovator gets by
introducing a new technology, organizational form or marketing strategy.
Unit 3: Scarcity, work, and choice
Production function = A graphical or mathematical expression describing the amount of output that
can be produced by any given amount or combination of input(s). The function describes differing
technologies capable of producing the same thing.
Marginal product = The additional amount of output that is produced if a particular input was
increased by one unit, while holding all other inputs constant.
Concave function = A function of two variables for which the line segment between any two points on
the function lies entirely below the curve representing the function (the function is convex when the
line segment lies above the function).
Tangent = When two curves share one point in common but do not cross. The tangent to a curve at a
given point is a straight line that touches the curve at that point but does not cross it.
Utility = A numerical indicator of the value that one places on an outcome, such that higher valued
outcomes will be chosen over lower valued ones when both are feasible.
Maximizing utility:
MRS = Px / Py
MRS = MUx / MUy
Vervolgens de waarde van y invullen in de budget constraint om te weten wat x is
Hierna deze waarde van x weer invullen om te weten wat het y coördinaat is
Indifference curve = A curve of the points which indicate the combinations of goods that provide a
given level of utility to the individual.
, Marginal rate of substitution (MRS) = The trade-off that a person is willing to make between two
goods. At any point, this is the slope of the indifference curve.
Opportunity costs = When taking an action implies forgoing the next best alternative action, this is
the net benefit of the foregone alternative.
Economic cost = The out-of-pocket cost of an action, plus the opportunity cost.
Feasible frontier = The curve made of points that defines the maximum feasible quantity of one good
for a given quantity of the other.
Marginal rate of transformation (MRT) = The quantity of some good that must be sacrificed to acquire
one additional unit of another good. At any point, it is the slope of the feasible frontier.
The slope of the indifference curve is the MRS.
The slope of the frontier is the MRT.
Constrained choice problem = This problem is about how we can do the best for ourselves, given our
preferences and constraints, and when the things we value are scarce.
Budget constraint = An equation that represents all combinations of goods and services that one
could acquire that exactly exhaust one’s budgetary resources.
Budget constraint = wordt vaak geschreven als c=w(24-t)
Your optimal combination of consumption and free time is the point on the budget constraint where:
MRS = MRT=𝑤
Income effect = The effect that the additional income would have if there were no change in the price
or opportunity cost.
Substitution effect = The effect that is only due to changes in the price or opportunity cost, given the
new level of utility.
Voorbeeld:
A wage rise:
raises your income for each level of free time, increasing the level of utility you can achieve
increases the opportunity cost of free time
So it has two effects on your choice of free time:
The income effect (because the budget constraint shifts outwards): the effect that the
additional income would have if there were no change in the opportunity cost.
The substitution effect (because the slope of the budget constraint, the MRT, rises): the effect
of the change in the opportunity cost, given the new level of utility.
Conspicuous consumption = The purchase of goods or services to publicly display one’s social and
economic status.
Unit 4: Social interactions
Social interactions = Situations in which the actions taken by each person affect other people’s
outcomes as well as their own.
