Key Concepts in Microeconomics: Consumer Theory and Market Welfare
Four Properties
1.
Higher indifference curves are preferred to lower ones.
2. Indifference curves cannot cross
3. Indifference curves are downward sloping.
4. Indifference curves are bowed inward –convexity-
Tangency Condition
MRS = P1 / P2
Consumer’s Optimal Choice
MU1 / MU2 = P1 / P2
Proportionality Rule
MU1 / P1 = MU2 / P2
Perfect Substitutes:
Indifference curves are straight lines. Optimal choice is at one extreme (all of one good).
Perfect Complements:
Indifference curves are L-shaped.
Understanding Market Elasticity: Demand, Supply, and Income Effects
Elasticity: Definition and Concepts
Elasticity measures the percentage change in quantity demanded or supplied in response to percentage variations in other dependent variables (such as price or income). When analyzing supply and demand curves, elasticity is present at each and every point. A curve is said to have constant elasticity if the value remains the same across all points.
Price Elasticity of Demand (PED)
The Price Elasticity of Demand (PED) measures the percentage variation in quantity demanded
Read MoreBehavioral Economics: Biases, Prospect Theory, Utility
Session 1: orthodox neo clsscl: based of rational choice, may not consider people deviate from this model ≠ Behavioral eco: behaviors deviates in systematic and predictable ways (irrational) ealry neo classlc: hedonic psych maximize pleasure minimize pain post-war neo:
refernces to unobservable mental states were unscientifc, they focused on choices of individudals that “mirrored preferences” / Methodo of Behavioral eco: laboratory experiments/field expirements/ process measures (brain scans&
Production, Cost, Revenue, and Profit Maximization Concepts
Production and Cost Analysis
Short-Run Production Concepts
Total (Physical) Product (TPP)
- Definition: The total amount of output obtained from a given amount of input.
- Graph: Vertical axis: Units of Output; Horizontal axis: Units of Input.
Average (Physical) Product (APP)
- Definition: The amount of output obtained per unit of input.
- Formula: Output / Input (APP = TPP / Input).
- Graph: Vertical axis: Average Product; Horizontal axis: Units of Input.
Marginal (Physical) Product (MPP)
- Definition: The additional
Understanding Supply, Cost, and Revenue in Economics
Supply Fundamentals
- Supply indicates the amount of a good a seller is willing and able to produce at each price point.
- The quantity supplied and supply are distinct concepts. The quantity supplied is the specific amount a firm is willing and able to produce at a particular price.
- The Law of Supply states that the quantity supplied increases as the price rises. This demonstrates a direct relationship between price and quantity supplied.
- Movements along the supply curve are caused exclusively by a change
Core Concepts and Econometrics in Labor Market Analysis
Section 1: Labor Demand Basics
- Firms hire workers up to the point where the wage equals the Value of Marginal Product (VMP).
- VMP = P × MP (where P = price of output, MP = marginal product of labor)
- Downward-sloping labor demand due to diminishing marginal returns to labor.
Section 2: Labor Supply and Elasticity
- Labor supply reflects the tradeoff between leisure and work.
- Reservation wage: the minimum wage a person is willing to accept for a job.
- Effects of wage increase:
- Substitution effect: work is more