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1、MICROECONOMICS Classroom Lecture Notes (3 credits, as of 2009),based on Hal R. Varians Intermediate Microeconomics, Sixth Edition, referring to Pindyck and Rubinfelds Microeconomics, Fourth Edition.,Chapter 0,Economics,The source of all economic problems is scarcity.,Problem of trade-off, and choice
2、. Economics, as a way of thinking, as a dismal science. Problems- solutions- hidden consequences.,Main decision-making agents:,1 individuals (household), 2 firms, and 3 governments.,Objects of economic choice are commodities, including goods and services.,Main economic activities:,Consumption, Produ
3、ction, and Exchange.,Microeconomics and macroeconomics:,to show the market mechanism (the invisible hand), to supplement it.,The circular flow of economic activities.,product market factor market,The product market and the factor market.,The market relation is mutual and voluntary. Positive issues a
4、nd normative issues.,Marginal analysis,Relations between Total magnitudes, Average magnitudes, and Marginal magnitudes.,1, MM is the slope of the TM curve; 2, AM is the slope of the ray from the origin to the point at the TM curve;,TM,MM(x*),AM(x*),x*,x,3, TM increasing (decreasing) if and only if M
5、M 0 ( MM AM ( MM AM );6, If AM is at maximum or minimum, then MM = AM,or MM cuts AM at the latters maximum or minimum.,Chapter 1,The Market,Economics proceeds by developing Models of social phenomena. By a model we mean a simplified representation of reality.,Exogenous variables: taken as determined
6、 by factors not discussed in a model.,Endogenous variables: determined by forces described in the model.,The optimization principle:,People try to choose whats best for them.,The equilibrium principle:,Prices adjust until demand and supply are equal.,The demand curve:,A curve that relates the quanti
7、ty demanded to price.,The reservation price:,Ones maximum willingness to pay for something.,From peoples reservation prices to the demand curve.,Similarly, the supply curve.,Fig.,Pareto efficiency:,A concept to evaluate different ways of allocating resources.,A Pareto improvement is a change to make
8、 some people better off without hurting anybody else.,An economic situation is Pareto efficient or Pareto optimal if there is already no way to make any more Pareto improvement.,Short run and long run,Equilibria in the short run (some factors are unchanged) and in the long run.,Chapter 2,Budget Cons
9、traint,* Vector variables and vector functions. * The inner product of two vectors. * With the price vector p = ( p1, , pn ),the value of the commodity bundle x = ( x1, , xn ) is pTx = i pixi.,However, two goods are often enough to discuss.,The budget constraint: p1 x1 + p2 x2 m.,The budget line and
10、 the budget set (the market opportunity set).,The slope of the budget line: d x2 /d x1 = p1 / p2 .,How the budget line moveswhen the income changes, orwhen a price changes.,x2,x1,Budget set,Budget line Slope = -p1/p2,m/p2,m/p1,Budget line and budget set,x2,x1,Budget line,Slope = - p1/p2,m/p2,m/p2,m/
11、p1,m/p1,Increasing income,Slope = - p1/p2,m/p2,Budget line,Slope = - p1/p2,m/p1,m/p1,Increasing price,A subsidy is the opposite of a quantity tax.,Taxes, quantity taxes, value taxes (ad valorem taxes), and lump-sum taxes.,Rationing.,Their effects on the budget set.,Chapter 3,Preferences,* Prerequisi
12、te: A binary relation R on X is said to be Complete if xRy or yRx for any pair of x and y in X; Reflexive if xRx for any x in X; Transitive if xRy and yRz imply xRz.,Rational agents and stable preferences,Bundle x is strictly preferred (s.p.), or weakly preferred (w.p.), or indifferent (ind.), to Bu
13、ndle y. (If x is w.p. to y and y is w.p. to x, we say x is indifferent to y.),Assumptions about Preferences,Completeness: x is w.p. to y or y is w.p. to x for any pair of x and y.,Reflexivity: x is w.p. to x for any bundle x.,Transitivity: If x is w.p. to y and y is w.p. to z, then x is w.p. to z.,T
14、he indifference sets, the indifference curves.,They cannot cross each other.,Fig.,indifference curves,x2,x1,Perfect substitutes and perfect complements.Goods, bads, and neutrals. Satiation. Figs,Blue pencils,Red pencils,Indifference curves,Perfect substitutes,Perfect complements,Indifference curves,
15、Left shoes,Right shoes,Well-behaved preferences are monotonic (meaning more is better) and convex (meaning average are preferred to extremes). Figs,x2,x1,Better bundles,(x1, x2),Monotonicity,Better bundles,The marginal rate of substitution (MRS) measures the slope of the indifference curve.MRS = d x2 / d x1, the marginal willingness to pay ( how much to give up of x2 to acquire one more of x1 ). Usually negative. Fig,Convex indifference curves exhibit a diminishing marginal rate of substitution. Fig.,
