Microeconomics 142Micro:- A single person- Single firm- Single industryMacro:- Economy as a wholeThree Ideas:- People are rational- People respond to economic incentives- Optimal decisions are made at the “margin”o Margin: the benefits vs. the costsOpportunity Cost:- The value of the thing you didn’t do- The value of the next-best alternativeNormative vs. Positive:- Nissan leaf is recognizable as a positiveMarket Economy vs. Centrally planned economy- pg. 10Productive efficiency vs. allocative efficiencySet of buyers and sellers- Buyers: demand- Sellers: supplyDemand:- Law of demand (lower price= higher demand and vice versa)- Demand Curve- All else held equal- Charging price causes movement a long the curve.Law of Demand: pg. 71- Substitution Effecto Pizza for burger example- Income effecto Pizza is less, so buy more pizzaGoogle Fiber:- Change in demand is change in something else, like income.- Change in the price= change in quantitityShifting the Demand Curve:- For most goods, increase in income means an increase (shift right) in demand o Normal goods- Increase income could also mean a decrease (shift left) in demando Inferior goods- A change in the price of one good, Good X, can cause a change in the demand for Good Y.Substitutes: Diet Coke vs. Diet PepsiCompliments: Hot dogs and Hot dog buns. Third Demand Shift Factor: tastes changeFourth Demand Shifter:- People expect the price to be higher in the future (shifts right)- Also expect price to be lower in the future (shifts left)- Deflationary spiralFifth Demand Shifter: (Demographics and population)- Number of buyers- As overall population increases, demand increases. Demand Shifters:1. Income2. Price of other goods3. Tastes/ preferences4. Expectations5. Population/ demographicsSupply:- Increase in price= increase in supply- Goes from diagonal left to rightSupply Shifters:1. A change in technology (shift right/ increase)2. A change in the price of inputs (goes up=left/ goes down=right)3. A change in expectations 4. A change in the numbers of firms/sellers (goes up=right)5. A change in prices of substitutes in production Equilibrium:- The side of the system moves towardWhen both curves move:- If they move in the same direction, you will know quantity, not price.- If moving in opposite directions, you will know price, not quantity.Supply & Demand Curve Equation:P=a-b*QConsumer Surplus: - Difference between price consumer has to pay and price consumer would be willing to pay.- Triangle MeasurementProducer Surplus:- Difference between lowest price a firm would accept and the price it would actually receiveDeadweight Loss: The reduction in economics surplus that results when the market isn’t efficient.Price ceiling:- A level above which price can not rise.Shortage:- Price above equilibrium does nothing to the