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Economics

Economics. Concepts. Economics studies behaviour and markets What would an individual do if circumstances change? Why do we see what we see? Equilibrium. (super short) Introduction to Economics IES! We have preconceptions

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Economics

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Presentation Transcript

  1. Economics Concepts

  2. Economics studies behaviour and markets • What would an individual do if circumstances change? • Why do we see what we see? • Equilibrium.

  3. (super short) Introduction to Economics • IES! • We have preconceptions • Economists are just a bunch with common preconceived ideas = Economics paradigm • Unlimited wants • Scarce resources • Choice is a consequence of scarcity • Opportunity cost is a consequence of scarcity • Opportunity cost = too important to miss • Homo economicus = (smart) maximizer

  4. Some (a little) more techy stuff • Decision makers • Individuals • Households • Firms • Individuals/households maximize utility • Scarcity => maximize surplus • Firms maximize profits • Profits = surplus • Why profits? “Corporations are people, my friend!” ® Mitt Romney • Marginal reasoning • Marginal cost • Marginal benefit • Marginal revenue

  5. Policies and morals • Positive statements vs • Normative statements • Policy considerations are a mix of positive and normative

  6. Models and theories • A model is an abstract that can be manipulated easily • A theory = model + observed real-world phenomena • Theories are often a mix of positive and normative • So we say there are ideologies in Economics

  7. The Law of Demand • Maximization • Price is given • Marginal benefit is diminishing • Equilibrium for a person • Price = marginal benefit • Price up => quantity demanded down • Price down => quantity demanded up • The Law of Demand: Price and quantity demanded are inversely related • UNIVERSAL and FOUNDATION

  8. Supply • Maximization • Price is given • Marginal cost is increasing • Equilibrium for a competitive firm • Price = marginal revenue • Price up => quantity demanded up • Price down => quantity demanded down

  9. Competitive market • Information requirements • What price reflects • Marginal value • Marginal cost (= value of something else) • Equilibrium is what we observe (and the supply/demand curves are not)

  10. Comparative statics • Endogenous variables • Equilibrium price • Equilibrium quantity • Endogenous variables • Demand • Price of other goods • Income • Weather • + + + + • Supply • Prices of inputs • Technology • Expectations • Policies that shift the curves

  11. Efficiency • Surplus from trade • Maximized in equilibrium • (what equilibrium?)

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