Week 1 - Notes + Math Lab PDF

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Summary

Lecture notes on Chapter 1 along with the first Math Lab, walking you through the steps and formulas.
Professor: John Spraggon...

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Lecture 1 - Notes Economics - Study of how individuals, governments and firms allocate scarce resources. Scarce Resources - Money, time etc.

Math Lab 1 Demand - Quantity is a function of Price. Y = Q(P) Y - Endogenous variable - What is determined by the model. P - Exogenous Variable - Used inside the model, determines what is outside the model.

Chapter 1 - Introduction Microeconomics - Study of how individuals and firms make decisions to make themselves as well-off as possible in a world of scarcity. How those individual decisions affect markets and the entire economy. Price Theory - How the action of buyers and sellers affect prices and how prices affect the actions of buyers and sellers. Consumers pick the goods and services that make them as happy as possible given their limited wealth. Firms decide - What goods/services to produce? Where to produce them? How much to do produce to maximize profits? How to produce that quantity at the lowest costs by managing their resources - labour, capital, materials and energy? Governments decide - How to benefit/monitor consumers and firms? Whether they should and how they should subsidize, tax or regulate industries and consumers? Three Major Trade-Offs: - Which goods to produce? If a society produces more apples you will produce less pears because of the limited resources. - How to produce? Firms often change some of the resources they use because one is cheaper than the other. Difference between coconut oil and palm oil. - Who gets the goods and services? The more of society’s goods and services you get, the less someone else gets. Markets - an exchange mechanism that allows buyers to trade with sellers.

Single Markets - Trade off a single good or goods that are very closely related. E.g - cars, movies, books. Model - A description of the relationship between two or more economic variables. How a change in one economic variable may affect the other. Models based on economic theories are used to predict the future or to answer questions about how some change, such as a tax increase, affects various sectors of the economy. A good theory is simple to use and makes clear, testable predictions that are not refuted by evidence. Most microeconomic models are based on maximizing behavior. Economists use models to construct positive hypotheses concerning how a cause leads to an effect. These positive questions can be tested. In contrast, normative statements, which are value judgments, cannot be tested. Most microeconomic models assume that decision makers wish to make themselves as well off as possible. Economic Theory - the development and use of a model to test hypotheses. A normative statement concerns what somebody believes should happen; a positive statement concerns what will happen. Microeconomic models are used to: - explain real-life phenomena. -

evaluate policy alternatives. make predictions.

A microeconomic model - description of the relationship between two or more economic variables.

Week 2 (Math Lab 2) Steps for Solving Systems of Equations: Step 1: Do you have the same number of equations as you have unknowns?

- If yes, proceed to Step 2. - If no, you need to find more information Step 2: Number your equations from 1 to N (where N is the total numbers you have). Insert equation 1 into equation 2. Usually written as (1) → (2). Step 3: Simplify the equation. Step 4: Are there more than two equations? - If no, skip step 4 and proceed to step 5. - If yes, then you need to put the result from step 3 into equation 3, and simplify. Continue substituting and simplifying until you reach the last equation. Step 5: Now, work backwards. - If your system only has 2 equations, put the answer from Step 2 into equation 1. Simplify. You have now solved the system! - If your system has more than 2 equations, start at the end with the answer you found in Step 4 (the Nth equation). Then substitute into the N-1th equation and simplify. Continue working backwards until you have an answer for each variable....