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