MICROECONOMICS Classroom Lecture Notes (3 credits, as of 2005)

based on Hal R. Varian ’ s Intermediate Microeconomics, Sixth Edition, referring to Pindyck and Rubinfeld ’ s Microeconomics, Fourth Edition.

Chapter 0

The source of all economic problems is scarcity.

Problem of trade-off, and choice. Economics, as a way of thinking, as a dismal science. Problems - solutions - hidden consequences.

Main decision-making agents: 1 individuals (household), 2 firms, and 3 governments.

Objects of economic choice are commodities, including goods and services.

Main economic activities: Consumption, Production, and Exchange.

Microeconomics and macroeconomics: to show the market mechanism (the invisible hand), to supplement it.

The circular flow of economic activities. product market factor market

The product market and the factor market. The market relation is mutual and voluntary. Positive issues and normative issues.

Marginal analysis Relations between Total magnitudes, Average magnitudes, and Marginal magnitudes.

1, MM is the slope of the TM curve; 2, AM is the slope of the ray from the origin to the point at the TM curve; TM MM(x*) AM(x*) x* x

3, TM increasing (decreasing) if and only if MM > 0 ( MM < 0 ); 4, If TM is at maximum or minimum, then MM = 0;

5, AM increasing (decreasing) if and only if MM > AM ( MM < AM ); 6, If AM is at maximum or minimum, then MM = AM, or MM cuts AM at the latter ’ s maximum or minimum.