Microeconomics Notes with Important Terms and Graphs

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Microeconomics Notes with Important Terms and Graphs

By | November 2011
Page 1 of 46
Language of economics

Fundamental problem facing mankind

“Our resources are limited (scarce), but our wants (aspirations to good life , ambitions , needs, dreams) are unlimited.”

SCARCITY = Budget Constraint

Proof Resources Limited
* Time: 24 hours day
* Time is money
* 20 hours in bed (leisure)
* Safe drinkable water = Less than 1% of total water
* $2000 apt/studio, cook own food
* $2000000 a month
* Mansion
* Personal Cook
* Personal Bodyguard
* House Maintenance

Resources are limited
- There is a limit to how much one can achieve, produce, consume

Solution: How to raise living standard?
* Become Chinese (average salary in china < US)
* Live in caves (Still have 24 hours)
* Efficient choices / Management of scarce resources ✓

Economics = the study of how humans (society) manage the scarce resources. All are subject to economic analysis because of scarce resources All are subject to economic analysis because of scarce resources

* College Education (Subject to economic analysis)
* Church (Subject to economic analysis)
* Business, Entrepreneurship (Subject to economic analysis) * Election (Subject to economic analysis)
* Size of US family is down.
* Romance + Marriage

Given Scarcity

More on one activity
More on one activity

Less on the rest

Less on the rest

Opportunity Cost
* No free lunch!
* Any choice => “Cost”
* Opportunity cost = best alternative lost, sacrificed, given us as we make decisions. * Opp. Cost -> Full cost of college (BA -> 4 Years) * Explicit Cost ($) Tuition, books, supplies = $20,000 a year. * Hidden Cost (Implicit) -> Lost Earnings -> $25,000 * Stress + Anxiety -> Health Management -> $5000

Benefits of college
* Private Benefits
* Higher Income
* $45000 X 40 = 1,800,000

* Public Benefits...

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