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Economics 1 summary/ lecture notes Tilburg University
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This document contains all the notes from all the lectures and is a very nice summary for the final of Economics 1.
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Economics 1(week 1)
First principles
1. Choices are necessary because resources are scarce.
most economics research is empirical (with data)
In every model you need to make simplifications and assumptions.
models help understand complex situations and analyze the effect of (policy)
change.
Positive analysis studies how things are, theoretically there is an objectively correct
answer.
Normative analysis studies how things should be so the answer is (at least in part)
subjective.
2.Opportunity cost of something is what you must give up in order to get it.
Opportunity cost is what you have given up in the time you used to do something.
3.“How much” is a decision at the margin.
4.People usually respond to incentives, exploiting opportunities to make themselves
better off.
But incentives can be many things, monetary and non-monetary.
How people respond to incentives is an empirical question.
5.There are gains from trade
6. Markets move toward equilibrium.
7. Resources should be used efficiently to achieve society’s goals.
8. Markets usually lead to efficiency.
9. When markets don't achieve efficiency, government intervention can improve
society’s welfare.
A point on the frontier is feasible and efficient, a producer will always choose this
point.
The production possibility frontier also shows the opportunity cost.
Division of labor can be beneficial if a group has absolute advantages.
Opportunity costs = slope of ppf (in een breuk)
To get the opportunity cost of y take the inversion. so ⅕ inverted means 5. inverted means 5.
The law of demand: All other things equal, a higher price leads to a lower demand.
High end products of brands are not equal to the rest so this doesn’t apply to those
products.
Some goods show a positive relationship between quantity and price demanded.
(week 2)
, The law of demand: All other things equal, a higher price leads to a lower demand.
(slope downward)
High end products of brands are not equal to the rest so this doesn’t apply to those
products.
Some goods show a positive relationship between quantity and price demanded.
The law of supply: All other things equal, a higher price leads to a larger supply.
(slope upward). If supply increases, the line shifts to the right.
Market equilibrium: If demand increases the market equilibrium shifts to the right.
Consumer surplus: when you buy something for less than you were willing to pay.
Producer surplus: The difference between the price and the cost to make it is the
producer surplus.
Total surplus: the sum of the consumer and producer surplus
Normal goods: If income increases, the demand for a normal good increases.
Inferior goods: If income increases, the demand for an inferior good decreases.
Substitutes: If the price of good Y increases, the demand for good X increases.
Complements: If the price of good Y increases, the demand for good X decreases.
Market demand can be derived by summing up individual demand horizontally.
Government can intervene with market equilibrium when necessary by installing:
- Price ceilings (maximum price), the surplus that is lost because of price
ceilings is called deadweight loss, the consumer surplus enlarges while the
producer surplus shrinks.
- Price floors (minimum price), there will be excess surplus. Consumer surplus
will decrease and producer surplus could increase or decrease.
- Quota
- Taxes
- Subsidies
General effects of price controls:
Reduces total surplus (welfare)
Redistributive effects, surplus is shifted between and among producers and
consumers.
Externalities are bad effects of a market, for example pollution. They can be positive
as well.
(week 3)
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