1. Economics Concepts 1

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

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 3

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 4

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

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 6

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 7

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 8

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) 9

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 10

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