Lecture notes summary economics Y2

Lecture 1
Micro & Macro
Microeconomics  Is concerned with the economy at the individual level, the actions of firms and households.

Macroeconomics  Analyses the operation of the whole economy. Growth; Unemployment; Inflation; Exchange Rates

Definition
Economics is concerned with the study of how scarce resources are allocated among unlimited wants

We have to make choices of resources  scarce

Government has to decide what they are going to supply



Opportunity cost  we don’t measure in terms of what it costs, we measure it by what we have to give up (Next best
alternative)

 The opportunity cost of being in class is being in bed
 Tradeoffs  Having air to breath VS. Income of company



Optimizing  People are trying to get the optimal level of satisfaction/ happiness

Rational decision makers?  Marginal cost/ Marginal benefits

Marginal  What the cost/ Benefit of 1 more

Marginal cost < Marginal benefit  do more

Marginal cost > Marginal benefit  do less



Positive  Statement of fact which can be easily proven

Normative  Statement of opinion

We are all trying to pass of normative statements as positive

Production possibility curve
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,Lecture 2
As the price for a good rises, the quantity supplied rises and the quantity demanded falls. As the price falls, the quantity
supplied falls and the quantity demanded rises.

Demand
The law of demand:

Ceteris Paribus (all other things staying the same), the higher the price of a good or service, the less will be the quantity
demanded; and the lower the price of a good or service, the greater will be the quantity demanded.




↑P  ↓D

↓P  ↑D

Price is the only variable that changes ON the demand curve  The rest will shift the curve

Market economy  market decides what is on the market

Determinant of Demand (BITER):
- Buyers (Number of buyers change)
- Income (Y) Effect
 If price goes up buying power goes down

 If price goes down buying power goes up

- Taste (Changes in preference)
- Expectations (price to fall/ price to rise)
- Related goods  Prices of other goods/ services
 No relationship
 Substitute goods ( If price of product goes up, demand for substitute goes up)
 Complementary goods ( If the price of product goes up, demand for complementary goes down)
 Income levels  Inferior goods, normal goods, luxury goods

Demand = a-bP (a= cross on the axes, b= point on the graph)

Increase in Demand: Decrease in Demand:

, Supply
The law of supply

The higher the price of a good the greater will be the quantity supplied and the lower the price, the less will be the
quantity supplied




Determinants of Supply (STONER):
- Subsidies (Right shift) and Taxes (left shift)
- Technology changesincreases companies to supply
- Other goods prices (Move to substitute)
- Number of Sellers (How many firms are in the market)
- Expectations (Future prices and economic conditions)
- Resources cost  Cost of production (Move to substitute)

Increase in Supply: Decrease in Supply:




Supply= c+dP (c= cross on the axes d= point on
the graph) Price of the good

↑P ↑S
↓P ↓S

Supply and Demand Surplus/ Shortage