Microeconomics 1 for ECO summary - Tilburg university - Economics
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Course
Microeconomics 1
Institution
Tilburg University (UVT)
Book
Microeconomics
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Summary for the course ''Microeconomics 1'. This summary was written in order to study for the midterm as well as for the final. Everything you need to know is available in this summary.
Advice: this summary alone will not be enough, the tutorials ar...
,Chapter 1
Economics: Allocation of limited (scarce) resources to satisfy unlimited human wants
Objective function: what the agent cares about
Constraint: limits
Alternatives: what an agent could do
Consequences: what happens after you choose an alternative
Opportunity cost: Value of that resource in its best alternative use
Constrained optimization: optimizing an objective function in the presence of constraints.
Marginal analysis: The marginal impact of the last unit of the exogenous variable on the
endogenous variable
Positive economics: facts, no disapproval, will be / has been.
Normative economics: Subjective, value judgement, should be, what’s the ‘’best’’.
Equilibrium analysis: no agent has a desire to switch from the equilibrium.
Comparative statics: compares the equilibrium state of a system before a change in the
exogenous variables to the equilibrium state after the change.
(how many more hours would you study micro in case your grade becomes twice as
important)
Chapter 2
Competitive markets: sellers and buyers who take the market price as given.
The law of demand: the quantity of a good demanded decreases when the price goes up
(downward sloping!)
Violation: Giffen goods, luxury goods
Giffen good: low income, non-luxury product. Bread, rice and wheat. Very rare
The law of supply: the quantity of a good offered increases when the price goes up.
(upward sloping!)
Excess supply: if sellers cannot sell as much as they would like at the current price.
Excess demand: if buyers cannot buy as much as they would like at the current price
2
, Consumer surplus: difference between the max. amount a consumer is willing to pay and
the amount he must actually pay.
Producer surplus: difference between the min. amount for which a producer is willing to
product and the amount he actually receives.
Choke price: where the demand is 0
Price elasticity of demand: measures the sensitivity of the demanded quantity to price
changes. (always negative or zero!)
Or
Elastic: value < -1 (horizontal line!)
Unitary elastic: value = -1
Inelastic: -1 < value < 0 (vertical line!)
Arc elasticity: “step level” changes in Q and P
Point elasticity: infinitely small changes in Q and P
first part is just the derivative of the demand function
Linear demand curve elasticity
Q = a – bP
Q = 400 – 10P
3
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