Chapter 1
Section 1.1
Microeconomics: The branch of economics that studies the specific choices made by
consumers and producers.
Theories and models: Explanations of how things work that help us understand and
predict how and why economic entities behave as they do.
Microeconomics relies on theories and models to study the choices made by
individuals and firms. Intermediate microeconomics builds on the principles of
microeconomics course by adding mathematical models to the examination of
consumer and producer behavior. Practicing the mathematics underlying
microeconomic theory is the key to becoming a skilled economist. In addition,
intermediate microeconomics has a strong focus on policy and its effects on behavior.
Section 1.2
Empirical: Using data analysis and experiments to explore phenomena.
Microeconomics looks at a variety of decisions made by consumers and producers as
they interact in the markets for goods and services, and at the different market
structures in which consumers and producers operate. A wide range of topics deepens
our understanding of the microeconomics of consumer and producer interaction,
including risk and uncertainty, the role of information, and the study of behavioral
economics. In recent years, microeconomics has evolved from a discipline that relied
primarily on theory to one based in empirical studies (data analysis and
experiments).
, Chapter 2
Section 2.1
Supply: The combined amount of a good that all producers in a market are willing to
sell.
Demand: The combined amount of a good that all consumers are willing to buy.
Four key assumptions: One single market, goods are identical, sell for same price
and everyone has the same information, there are many consumers and producers.
Commodities: Products traded in markets in which consumers view different
varieties of the good as essentially interchangeable.
Economists use models to analyze markets. Models employ simplifying assumptions
to reduce the incredible complexity of the real world so that general insights can be
learned. The supply and demand model is one of the most used analytical
frameworks in economics. This model makes several assumptions about the market
that is being analyzed, including that all goods bougt and sold in the market are
identical, they are all sold for the same price, and there are many producers and
consumers in the market.
Section 2.2
Substitute: A good that can be used in place of another good.
Complement: A good that is purchased and used in combination with another good.
Factors that influence demand: Price, number of consumers, consumer income,
consumer taste and prices of other goods.
Demand curve: The relationship between the quantity of a good that consumers
demand and all the good's price, holding all other factors constant.
Inverse demand curve: A demand curve written in the form of price as a function of
quantity demanded.
Demand choke price: The price at which no consumer is willing to buy a good and
quantity demanded is zero; the vertical intercept of the inverse demand curve.
Change in quantity demanded: A movement along the demand curve that occurs as
a result of a change in the good's price.
Change in demand: A shift of the entire demand curve caused by a change in a
,determinant of demand other than the good's own price.
Demand describes the willingness of consumers to purchase a product. There are
many factors that affect demand, including price, income, quality, tastes, and
vailability of substitutes. Economists commonly use the concept of a demand curve,
which essentially divides these factors into two groups: price and everything else. A
demand curve relates consumers' quantity demanded to the price of the good while
holding every other factor affecting demand constant. A change in a good's price
results in a movement along a given demand curve. If non-price factors change, the
quantity demanded at very price changes and the whole demand curve shifts.
Section 2.3
Production technology: The processes used to make, distribute, and sell a good.
Factors that influence supply: Price, suppliers' costs of production, number of
sellers, sellers' outside options
Supply curve: The relationship between the quantity supplied of a good and the
good's price, holding all other factors constant.
Inverse supply curve: A supply curve written in the form of a price as a function of
quantity supplied.
Supply choke price: The price at which no firm is willing to produce a good and
quantity supplied is zero; the vertical intercept of the inverse supply curve.
Change in quantity supplied: A movement along the supply curve that occurs as a
result of a change in the good's price.
Change in supply: A shift of the entire supply curve caused by a change in a
determinant of supply other than the good's own price.
Supply describes the willingness of producers to make and sell a product. Factors that
affect supply include price, available production technologies, input prices, and
producers' outside options. Supply curves isolate the relationship between quantity
supplied and price, holding all other supply factors constant. A change in a good's
price results in a movement along a given supply curve. If nonprice factors change,
the quantity supplied at every price changes and the whole supply curve shifts.
Section 2.4
Market equilibrium: The point at which the quantity demanded by consumers
, exactly equals the quantity supplied by producers.
Equilibrium price: The only price at which quantity supplied equals quantity
demanded.
(Excess supply) surplus: The amount by which quantity supplied exceeds quantity
demanded when the market price is higher than the equilibrium price.
(Excess demand) shortage: The amount by which quantity demanded exceeds
quantity supplied when market price is lower than the equilibrium price.
Combining demand and supply curves lets us determine the market equilibrium
price, which is where quantity demanded equals quantity supplied. This equilibrium
can be determined because demand and supply curves isolate the relationships
between quantities and the one factor that affects both demand and supply: price. At
the equilibrium, every consumer who wants to buy at the going price can, and every
producer who wants to sell at the current market price can as well.
Changes in the factors (other than price) that affect demand or supply will change the
market equilibrium price and quantity. Changes that increase demand and shift out
the demand curve will raise equilibrium price and quantity in the absence of supply
shifts; when the changes decrease demand and shift the demand curve in, price and
quantity will fall. Changes that increase supply and shift out the supply curve,
assuming no change in the demand curve, will increase equilibrium quantity and
reduce price. Changes that decrease supply and shift in the supply curve decrease
quantity and raise price.
If both supply and demand shift, either the effect on equilibrium price or the effect on
equilibrium quantity will be ambiguous. If demand and supply move in the same
direction, equilibrium quantity will follow, but the impact on price is unknown. On
the other hand, if demand and supply move in opposite directions, equilibrium price
will move in the same direction as demand (increase when demand rises, fall when
demand decreases) but we cannot say with certainty what the effect on equilibrium
quanitty will be.
Section 2.5
Elasticity: The ratio of the percentage change in one value to the percentage change
in another.
Price elasticity of demand: The percentage change in quantity demanded resulting
from a 1% change in price. (% change in quantity/ % change in price).
Elastic: A price elasticity with an absolute value greater than 1.
Inelastic: A price elasticity with an absolute value less than 1.
Unit elastic: A price elasticity with an absolute value equal to 1.
Perfectly inelastic: A price elasticity that is equal to zero; there is no change in
