Microeconomics Principles
constrained optimisation
"Microeconomics is a study of trade offs..." or otherwise, a study of
what goods or services are to be produced, how to produce the goods or services, how much goods or services to produce, who gets the goods or services (distribution)
4 fundamental questions of microeconomics
description of any relationship between two or more economic variables (never precise)
An economic model is a
explain reality as best as possible, be tractable and simplify assumptions to make powerful predictions
An economic model must
producers in a market offer their good to a wide range of consumers, and whomever bids the highest price (valuing the good most) will get it
Auctions on Ebay are an example of a *perfectly competitive market*, meaning
consumption, output, efficiency, competition, labour
Microeconomics considers how households reach decisions about ______________ and saving; how firms set a price for their __________; whether privatisation improves ______________; whether a market has enough ________________ in it; and how the market for __________ works.
unlimited wants and limited resources
The economic problem is that societies have
building models to explain the world
Theoretical Economics simply put is
utility
_____________ is economist speak for a good thing; a measure of satisfaction.
high price
low supply and high demand
consumers and producers
two powerful actors in an economy are
presumed goal of firms to maximise profit subject to consumer demands and input costs
Profit maximisation is a
allow firms and consumers to make relevant decisions
Consumers and firms will interact in a market place, and out of that market place will emerge a set of prices in a way economists will describe, and those prices will...
testing models to gather information (using statistical methods)
Empirical Economics simply put is
determined within the economic model
Endogenous
preferences and constraint
Every decision made an economist has attempted to model with varying degrees of success. This is modelling considering:
determined outside the economic model
Exogenous
price(s)
Microeconomic questions are resolved by ____________
individuals and firms make decisions in a world of scarcity
Microeconomics is the study of how
must not be judged on the validity of it's assumptions, but on the accuracy of it's predictions
Milton Friedman argued; a model...
the way things should be (increasing economic welfare)
Normative Economics simply put, suggests policies for
as if principle
Pool players do not mathematically compute optimum trajectory for every shot... but they behave as though they do. This can be applied to any economic decision, where the constrained optimisation can be modelling to understand the function of the economy. This is colloquially known as the...
the way things actually are
Positive Economics simply put, analyses
needs and wants exceed the resources available to meet them
Scarcity simply means
maximising consumer satisfaction (utility) subject to budget constraint
Utility Maximisation is the aim of