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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

Economics

Concepts

slide2

Economics studies behaviour and markets

    • What would an individual do if circumstances change?
    • Why do we see what we see?
    • Equilibrium.
slide3

(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
slide4

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
slide5

Policies and morals

    • Positive statements vs
    • Normative statements
    • Policy considerations are a mix of positive and normative
slide6

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
slide7

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
slide8

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
slide9

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)
slide10

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
slide11

Efficiency

    • Surplus from trade
    • Maximized in equilibrium
      • (what equilibrium?)