Microeconomics Lecture Notes Doviak Net-Books Pdf

Microeconomics Lecture Notes doviak net
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Preface, Microeconomics is the study of the behavior of individual households firms and industries as well as the. supply and demand relationships between producers and consumers . You might think of a household as a consumer but households are also producers For example take a. look at your kitchen you take raw materials meat cheese vegetables eggs salt and pepper as well as. capital stove and frying pan and your own labor to produce an omelet which is demanded by you and. members of your family They may not pay you in money but you re compensated in other ways . Cooking an omelet for your family is a very simple example of an economic problem So what s the. point The point is that economics isn t all about money It s about life It s about human behavior In. fact economic analysis can be applied to almost any problem imaginable . For example there is a branch of economics that studies the production of health and the demand for. health Notice that I wrote health and not health care . To take another example economic analysis can also be used to analyze the war on drugs without ever. mentioning the word price Instead what is important is opportunity cost what we have to give up. when we make a choice In some American cities police officers are so busy preparing prosecutions that. they don t have time to respond to 911 calls Why Because the politicians chose to put as many people in. jail as possible they actually had to forgo law and order . Studying economics will help you understand the nature of trade offs that you face in everyday life If you. spend more time studying economics you ll be less likely to make decisions that are as stupid as the ones. our politicians have made and more likely to make rational decisions . Page 2, Lecture Notes on the, Principles of Microeconomics. Eric Doviak, 3rd Edition June 2005, Table of Contents. 4 Lecture 1 Introduction and Math Review, 10 Homework 1A. 11 Homework 1B More Math Review Problems, 13 What s the difference between Marginal Cost and Average Cost .
17 Calculus Tricks, 22 Homework 1C, 23 Lecture 2 Production Opportunity Cost and Relative Price. 32 Homework 2,34 Lecture 3 Supply Demand and Equilibrium. 43 Homework 3,45 Lecture 4 Elasticity,54 Homework 4. 57 Review for the Mid term Exam, 61 Lecture 5 Household Behavior and Consumer Choice. 69 Examples of Income and Substitution Effects,78 Homework 5.
81 A Microeconomic Critique of the War on Drugs, 86 Lecture 6 The Production Process The Behavior of Profit Maximizing Firms. 93 Economic Thought on Land Value Taxation, 98 Notes on Isoquants Isocosts and the Memo on Land Value Taxation. 102 Homework 6, 104 Lecture 7 Short Run Costs and Output Decisions. 111 Why does a Firm Maximize its Profit where Marginal Revenue equals Marginal Cost . 113 Homework 7, 114 Lecture 8 Costs and Output Decisions in the Long Run. 120 Notes on the Zero Profit Result,122 Homework 8.
124 Review for the Final Exam, Page 3, Lecture 1, Introduction. and Math Review, Eric Doviak, Principles of Microeconomics. Helpful hints, x Economics doesn t have to x Most important part of any. be difficult economic model are the ,x BUT some people make ASSUMPTIONS. x it difficult for themselves x If you understand the. x I did assumptions of the model , x If a model is unclear don t you will understand the.
try to think of an example conclusions , from the 10 trillion US x You will NOT understand. economy the conclusions if you don t,x Instead apply the model to understand the. a small rural village assumptions , x WHEN READING DON T. SKIP CHAPTERS , Page 4, Scope Method of Economics. Why should I study economics , x To learn a way of thinking Hopefully you ll learn to use three.
key concepts in your daily lives , o efficient markets. o marginalism and, o opportunity cost, Efficient markets. x Profit opportunities are rare because everyone is looking for them . x Efficient markets eliminate profit opportunities immediately . x Ex You ll never find a good parking space because if there was a. good one it would already be taken before you got there . Marginalism,Average cost total cost divided by quantity. x If I spend 300 hours preparing 30 lessons for you . x You had better study ,x My average cost per lesson is 10 hours . Sunk cost costs that can no longer be avoided because they have. already been sunk , x If I teach this class again next semester I will have already sunk.
300 hours into preparation ,Marginal cost cost of producing one more unit. x Next semester I can recycle my notes so my marginal cost per. lesson will equal 75 minutes , x Compare that with my current 10 hours . Page 5, Opportunity Cost,x We all face choices Resources are scarce . x We can t spend more time or money than we have so we have to give up. one opportunity to take advantage of another , x If I have a choice between earning 1000 per month by teaching this. course OR earning 500 per month by working at McDonald s then . o It takes me one month to produce 1000 worth of teaching . o It takes me one month to produce 500 worth of burger flipping . x Q What s my opportunity cost of teaching ,x A Half a burger flipping per unit of teaching .
one month, one month per 1000 of teaching 1000 of teaching. one month per 500 of burger flipping one month, 500 of burger flipping. 500 of burger flipping 1 burger flippings, 1000 of teaching 2 teaching. I ll give a much much better example in the next lecture . Point plotting X Y ,x the first point in a pair lies on the. Math tool of, X axis horizontal axis ,x the second point in a pair lies on the.
econ analysis, Y axis vertical axis ,Let s graph the following equation. in red square points , y 5x 20,Connect points , 0 20 1 15 2 10 3 5 4 0 . y intercept ,x the value of y when x 0,x here it s 20 because . 20 5 0 20,slope we ll get back to that ,More examples . y 4x 5 blue round points , y 2x 15 green triangle points .
Page 6, equation slope y int Math tool of,y 5x 20 5 20. y 4x 5 4 5 econ analysis,y 2x 15 2 15, What is SLOPE . x the change in y divided by the, change in x, o y 5x 20. o x increases from 1 to 2, o y decreases from 15 to 10. o slope 10 15 5 5, 2 1 1,x positive slope x and y increase.
and decrease together,x negative slope x and y, NB in linear functions such as the. increase and decrease inversely ones here the slope equals the value. when one rises the other falls of the parameter by the variable X . x Why does curve slope up ,x When is avg consumption Analyzing. greater than avg income , How is this possible , Graphs. x A statistical estimation of, the relationship between. avg income and avg , consumption is , AC 0 57 AI 13 539.
where AC avg consumption, and AI avg income,x What s the significance of. the y intercept 13 539 ,x What s the significance of. the parameter next to the The graph illustrates relationship between. AI variable 0 57 average household income and average. consumption expenditure Along the 45, degree line income equals expenditure . Page 7, AC 0 57 AI 13 539, marginal propensity to consume. I m using an example from macroeconomics because some of you have already taken. a macro course If you haven t Don t worry We re just reviewing basic algebra . x If your boss increased your income from 31 000 to 32 000 how much more. would you consume , o On average you would consume an extra 570 worth of goods .
o Put differently if you were an average person your expenditure on. consumption goods would rise from 31 209 to 31 779 . x Every 1000 increase in income raises consumption by 570 Why . x marginal propensity to consume 0 57 NB that s the slope of the line . x What if you got fired How much would you consume . x Your income would fall to zero but you d still consume 13 539 worth of. goods After all you ve got to eat , x When your income is less than 31 486 your expenditures on consumption. goods exceed your income You run down your savings . x When your income is more than 31 486 your income exceeds your. expenditures on consumption goods You save some of your income . A few more definitions, AC 0 57 AI 13 539 Y C I G X M . x Model the formal statement of x Ceteris paribus all else. a theory often presented using equal , mathematical equations x How does an increase in. x Variable a measure that can investment I affect national.

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