Lecture Notes: Microeconomics 8/30/12Economics- allocation of scarce resources - Institutions: o Scarcity, choice, cost o Cost-benefit principle o Marginal Analysiso Production possibilitiesMicroeconomicsHow households/firms make choices and interact in marketsScarcityIdea that there is never enough time, $, energy to do everything/have everything wewant - Scarce Resourceso Laboro Lando Capital (manufactured resources/man made objects that help with production i.e. highways) o Technology o Time Scarcitychoice Scarcity forces us to choose with cost-benefit analysis Example: something costs $35 in Oakland, $25 in Waterfront…$10 benefit by going to Waterfront, but the cost is the time/trouble it takes to get to the Waterfront - If the cost is less than the benefit, the person won’t do whatever it is. - Analyzing the costs and the benefits together Scarcitychoice cost - Cost- what you give up to get - Choosing one alternative over another has cost- Opportunity cost- highest valued alternative that has to be given up to attan something or satisfy a wantModels (Theory) - Simplified descriptions of reality used to understand real life situations - Cost/benefit- used as an abstract model of how an idealized rational individual (someone who uses all information to achieve their goals to get the maximum benefit) would chose among competing alternatives.Cost-benefit subtleties - Absolutes not proportions that matter? - Optimal (BEST) decisions made at the margin? o How much?... - Ignore sunk costs “don’t look back” o Spent money already, don’t focus on that, you can’t get the money back, look at the future Production Possibilities Assumptions: 1. Country makes 2 goods 2. Country has fixed resources/technology3. Efficient production (refer to table in notes) Summary - Economics- social science studying human behavior, the way individuals and societies choose among the alternative uses of scarce resources to satisfy wants and needs. - Limited resources force people to face tradeoffs- Choosing one alternative over another generates a cost- opportunity cost - Optimal (best) decisions made at the margin - 2 simple models: Cost-benefit and
View Full Document
Unlocking...