Microeconomics- The study of how individuals make decisions and how these decisions interact

Marginal Analysis - How much decisions require making trade-offs at the margin: comparing
the costs and benefits of doing a little bit more of an activity versus doing a little bit less.
Individual Choice
1. People must make choices because resources are scarce.
2. The opportunity cost of an itemwhat you must give up in order to
get itis its true cost.
3. How much decisions require making trade-offs at the margin: comparing
the costs and benefits of doing a little bit more of an activity
versus doing a little bit less.
Self Interest
Individual pursuit of self interest can lead to good results for society as a whole
(Invisible Hand of the market).
- Can also lead to inefficient market outcome
Reasons for Market Failure (Market makes society worse off/ Market is inefficient)
1. A party prevents mutually beneficial trades from occurring (monopoly)
2. Side-effects on the welfare of others (pollution)
3. A good is not suited for efficient management (poorly made cars)
Production Possibilities Frontier (PPF)
- Shows trade-offs when considering two goods
- Graphical representation of opportunity cost
Comparative Advantage Opportunity cost is lower compared to other entity
Absolute Advantage Can produce more of a good compared to other entity
Normative Economics How economics should work. What is fair
Positive Economics How economics is. What is true about economics right now
Movement Along Demand Curve Change in quantity demanded because of change in price
Shift of Demand Curve Change in quantity demanded at the same price
Movement Along Supply Curve Change in quantity supplies because of change in price
Shift of Supply Curve Change of suppliers, technology, or prices of related goods
Normal Good Demand increases when income increases
Inferior Good Demand decreases when income increases
Willingness to Pay Maximum price at which a consumer will purchase a good
Deadweight Loss Inefficiency
Quota Rent Demand Price Supply Price
Minimum Wage Price floor with workforce as the suppliers and employers being consumers