Microeconomics HD notes for ECF1100 from Gabriella - Amazon Web ...
Microeconomics| ECF1100 | Textbook: principles of microeconomics| semester 2,2016| HD notes| (Hi there. In this semester, we had midterm exam in one lecture and reviews in the last lecture. That’s why only wk1-10 here. Gabriella.)
Week 1 introduction Keywords: tradeoff, efficiency for decision making, opportunity cost, PPF, marginal analysis, incentives, trade, comparative advantages, government intervene, economists proceed. Tradeoff: every economic decision entails a tradeoff (for individual: study or play, gun or butter… for society: efficiency and equity). To make decisions, we have to compare costs and benefits. Opportunity cost: the value of best alternative you must give up for that activity. This could be applied to explain: the pattern of specialisation and the terms of trade. Opportunity costs are the reciprocals of each other. To think about this, we need marginal thinking. PPF: production possibilities frontier is a graph showing the maximum amount of one good that can be produced for every possible level of production of the other good. It’s bowedout because the materials using to produce two are not the same and the first products are easier but after that are more difficult to produce. It’s straight line since the trade-off of two goods are constant. Marginal analysis: people should take action if the marginal benefits are at least as great as the extra costs. Sometimes, we need incentives to change the marginal benefits. Incentives: we will consider what people would respond to incentives. Trade: allow people/countries to specialise and enjoy variety of goods and services. Comparative advantages: in the trade, we are not going to look at absolute advantages but the comparative advantage, that is, countries will trade what they are comparatively better at. Determining comparative advantages could determine the pattern of specialisation. Government intervene: to improve on market outcome. In order to enlarge the economic pie, government enforce rules, maintain institutions; in order to change how the pie is divided, government promote efficiency and equity. Approach of study economic (economists proceed): observation, set models (assumptions: simplify reality to a tractable model that can be analysed scientifically)(models: eg, circular-flow diagram, production possibilities frontier), logical deduction, conclusion, compare with actual economic behavious.
Week 2 market, demand and supply Keywords: market, perfectly competitive market, demand, supply, market equilibrium Market: a space where buyers and sellers meet for a particular good or service.
Perfectly competitive market: a market in which the goods being offered for sale are perfect substitutes and there are so many buyers and sellers so that no single buyer or seller can influence the market price. Demand and quantity demanded: quantity demand is the amount of a goods that a buyer is willing and able to purchase. Demand relates to the person’s quantity demanded to the price of a good.(demand curve is always negative). If we add up each individual’s demand at a particular price, we obtain the total market demand at that price. Change in demand: when price changes, we see a movement along the curve; when other factors change, the entire demand curve shifts. (some other factors: income for normal and inferior goods, price of substitutes and complements, change in tastes, change in expectations about future income or price, number of buyers…) Supply and quantity supplied: quantity supplied is the amount of a good that a seller is willing and able to sell. Supply relates the seller’s quantity supplied to the price of a good. Change in supply: same, when the price changes, we see a movement along the supply curve; when the other factors change, the entire supply curve shifts. (some other factors: input prices, technology by changing the costs of production, expectations about input prices or output prices, number of sellers….) Market equilibrium: the two sides interact to determine the process and quantities exchanged. Equilibrium: a situation in which demand and supply are in balance. When market is in equilibrium, the price is called an equilibrium price and the quantity, an equilibrium quantity. Market not in equilibrium: excess supply or surplus( price is above the equilibrium price and sellers are unable to sell all they want to sell at the going price) and excess demand or shortage ( price is below the equilibrium price and buyers are unable to buy all they want at the going price. Change in equilibrium: event shifts the supply or demand curve to left or right. (Do tute 3 extraQ1) . . .
Week 8 competitive markets Keywords: profit maximisation, TR, AR, MR, MC, market structure, in long run and short run what do firms do. Profit: total revenue TR – total cost TC = P*Q – TC = (P-ATC)*Q Total revenue TR: price P * quantity sold Q Marginal revenue: delta TR/ delta Q Marginal cost: delta TC/ delta Q Profit maximisation: when MR=MC Market structure:
Average revenue AR: TR/Q
Competition: competition is most intense when firms compete on price. Entry barriers: any force that prevent firms from entering a new market. For example: monopoly over inputs, large fixed investment, distribution network, legal entry barriers, anti-competitive practices. Market power: a firm’s ability to raise price without losing much sales. Competitive market: there are many sellers and buyers, firms are price-takers but not being able to influence the price they charge. And in long run, there is freedom of entry and exit. This implies that MR=P, so, for competitive firms, profit maximisation is when P=MC. Free entry and exit guarantee that firms should be technical efficient. Competitive market is the benchmark of efficiency.
(part of week 8) . . . Thanks so much for reading. Hope you get HD in your microeconomics! Gabby.
Week 1 introduction Keywords: tradeoff, efficiency for decision making, opportunity cost, PPF, marginal analysis, incentives, trade, comparative advantages, government intervene, economists proceed. Tradeoff: every economic decision entails a tradeoff (for individual: study or play, gun or butter… for society: efficiency and equity). To make decisions, we have to compare costs and benefits. Opportunity cost: the value of best alternative you must give up for that activity. This could be applied to explain: the pattern of specialisation and the terms of trade. Opportunity costs are the reciprocals of each other. To think about this, we need marginal thinking. PPF: production possibilities frontier is a graph showing the maximum amount of one good that can be produced for every possible level of production of the other good. It’s bowedout because the materials using to produce two are not the same and the first products are easier but after that are more difficult to produce. It’s straight line since the trade-off of two goods are constant. Marginal analysis: people should take action if the marginal benefits are at least as great as the extra costs. Sometimes, we need incentives to change the marginal benefits. Incentives: we will consider what people would respond to incentives. Trade: allow people/countries to specialise and enjoy variety of goods and services. Comparative advantages: in the trade, we are not going to look at absolute advantages but the comparative advantage, that is, countries will trade what they are comparatively better at. Determining comparative advantages could determine the pattern of specialisation. Government intervene: to improve on market outcome. In order to enlarge the economic pie, government enforce rules, maintain institutions; in order to change how the pie is divided, government promote efficiency and equity. Approach of study economic (economists proceed): observation, set models (assumptions: simplify reality to a tractable model that can be analysed scientifically)(models: eg, circular-flow diagram, production possibilities frontier), logical deduction, conclusion, compare with actual economic behavious.
Week 2 market, demand and supply Keywords: market, perfectly competitive market, demand, supply, market equilibrium Market: a space where buyers and sellers meet for a particular good or service.
Perfectly competitive market: a market in which the goods being offered for sale are perfect substitutes and there are so many buyers and sellers so that no single buyer or seller can influence the market price. Demand and quantity demanded: quantity demand is the amount of a goods that a buyer is willing and able to purchase. Demand relates to the person’s quantity demanded to the price of a good.(demand curve is always negative). If we add up each individual’s demand at a particular price, we obtain the total market demand at that price. Change in demand: when price changes, we see a movement along the curve; when other factors change, the entire demand curve shifts. (some other factors: income for normal and inferior goods, price of substitutes and complements, change in tastes, change in expectations about future income or price, number of buyers…) Supply and quantity supplied: quantity supplied is the amount of a good that a seller is willing and able to sell. Supply relates the seller’s quantity supplied to the price of a good. Change in supply: same, when the price changes, we see a movement along the supply curve; when the other factors change, the entire supply curve shifts. (some other factors: input prices, technology by changing the costs of production, expectations about input prices or output prices, number of sellers….) Market equilibrium: the two sides interact to determine the process and quantities exchanged. Equilibrium: a situation in which demand and supply are in balance. When market is in equilibrium, the price is called an equilibrium price and the quantity, an equilibrium quantity. Market not in equilibrium: excess supply or surplus( price is above the equilibrium price and sellers are unable to sell all they want to sell at the going price) and excess demand or shortage ( price is below the equilibrium price and buyers are unable to buy all they want at the going price. Change in equilibrium: event shifts the supply or demand curve to left or right. (Do tute 3 extraQ1) . . .
Week 8 competitive markets Keywords: profit maximisation, TR, AR, MR, MC, market structure, in long run and short run what do firms do. Profit: total revenue TR – total cost TC = P*Q – TC = (P-ATC)*Q Total revenue TR: price P * quantity sold Q Marginal revenue: delta TR/ delta Q Marginal cost: delta TC/ delta Q Profit maximisation: when MR=MC Market structure:
Average revenue AR: TR/Q
Competition: competition is most intense when firms compete on price. Entry barriers: any force that prevent firms from entering a new market. For example: monopoly over inputs, large fixed investment, distribution network, legal entry barriers, anti-competitive practices. Market power: a firm’s ability to raise price without losing much sales. Competitive market: there are many sellers and buyers, firms are price-takers but not being able to influence the price they charge. And in long run, there is freedom of entry and exit. This implies that MR=P, so, for competitive firms, profit maximisation is when P=MC. Free entry and exit guarantee that firms should be technical efficient. Competitive market is the benchmark of efficiency.
(part of week 8) . . . Thanks so much for reading. Hope you get HD in your microeconomics! Gabby.
