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Samenvatting - Intermediate Microeconomics (010364)

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Deze samenvatting biedt een overzicht van intermediate microeconomics en behandelt de belangrijkste onderwerpen die in de klas zijn besproken. Het gaat in op consumentengedrag, productie en kosten, marktvormen (waaronder volkomen concurrentie, monopolie en oligopolie) en de theorie van de ondernemi...

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  • 19 juin 2024
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  • 2023/2024
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Summary Intermediate Microeconomics

Chapter 1: Preliminaries

Microeconomics: branch of economics that deals with the behavior of individual economic
units as well as the markets that these units comprise

Consumers:

- Trade-offs in the purchase of more of some goods for less of others
- Trade-off between current consumption and future consumption

Firms:

- Trade-offs in what to produce
- Trade-offs in the resources to use in production

Markets: a market is the collection of buyers and sellers that, through their actual or
potential interactions determine the price of a product or set of products ≠ industry!!

The extent of a market refers to the boundaries of a market, both geographical and in terms
of range of products produced and sold within it.

Geographic boundaries: highly localized market vs global market

Product range: are products used for the same or a different purpose?

Why is it important?

1.) Company decisions  who are the actual and potential competitors of our company?

2.) Public policy decisions  Should we allow this merger?

Chapter 2: The basics of supply and demand

,Chapter 3: Consumer behavior

Consumer theory
 consumers choose the best market basket (or bundle) they can afford

Can afford  budget constraints
Best  consumer preferences

 optimal choice = combination “can afford” + “best”

Price-consumption curve  income-consumption curve

Market baskets
 or a market bundle is a list with specific quantities of one or more goods

Example: units of food and units of clothing per month
Method of measurement largely arbitrary  units
Two-goods assumption? Good 2 as “composite good”
-> Composite good = combining more goods into one good

Consumer preferences

1.) Assumptions about preferences

4 basic assumptions: completeness, transivity, more is better than less

- Completeness: for any two market baskets A & B, a consumer will (1) prefer A to B,
(2) prefer B to A, or (3) be indifferent between the two. !! Preferences ignore costs !!

- Transitivity: if a consumer prefers market basket A to B, and prefers market basket B
to C, then the consumer also prefers market basket A to C. !! Necessary for
consistency !!

, - More is better than less (non-satiation): consumers always prefer more of any good
to less. They are never satisfied; more is always better. !! Exception: bads !!




- Diminishing marginal rate of substitution: indifference curve is convex if MRS
diminishes along the curve

2.) Indifference curves

Indifference curve: curve representing all combinations
of market baskets that provide a consumer with the
same level of satisfaction

Indifference map: graph containing a set of indifference
curves showing the market baskets among which a
consumer is indifferent

3 properties of indifference curves:

- Downward sloping: otherwise, the assumption ‘more is better than less’ about
preferences is violated
- Cannot intersect: otherwise the assumption ‘transivity’ of preferences is violated
- Convex: indifference curves are usually convex or bowed inward. They get flatter if
you move further to the right  “as food consumption increases, the slope of the
indifference curve falls in magnitude”. Indifference curve is convex if the MRS
diminishes along the curve

3.) Marginal Rate of Substitution (MRS)
 maximum amount of a good that a consumer is
willing to give up in order to obtain one additional
unit of another good

- Negative of the slope of the indifference curve at
any point
- MRS of food F for clothing C: - (-6/1) = 6
- Magnitude of the slope of the indifference curve

, 4.) Perfect substitutes
 two goods for which the MRS is a constant number

MRS  constant

Indifference curves are linear and have a constant slope

Examples:

- Red pencils and blue pencils
- Mastercard or Visa credit cards
- Orange juice and apple juice
- Coca-Cola and Pepsi

5.) Perfect complements
 two goods for which the MRS is zero or infinite

MRS  zero or infinite

Always consumed together in fixed proportion (not always
1 : 1)

Indifference curves are L – shaped

Examples:

- Right shoes and left shoes
- Computers and operating systems
- Portable gaming device and batteries

6.) Neutrals
 neutral good: a good that the consumer does not care
about

Example: hamburgers (like) and soft drinks (neutral)

“Satisfaction of the consumer depends entirely on how
many hamburgers he has. No matter how many soft drink
the consumer has. His satisfaction will remain the same.”

7.) Bads
 goods that the consumer does not like  good for
which less is preferred rather than more

Indifference curves have a positive slope

Example: air pollution, hamburger and soft drinks example

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