1. ## Micro-economic Lessons

There is little debate with concern with micro-economics. Nevertheless it is foundational to know this part of economics.

This is part 00

I will post lessons later on.

2. Lol. No thank you. Most microeconomics is common sense, complicated by a large amount of equations.

3. Originally Posted by FDG
Most microeconomics is common sense, complicated by a large amount of equations.
Yes, this is true.

I am going to do it anyway.

4. Microeconomics lessons

Part 1 section 1 subsection 1

-prices determine allocations

Law of Demand: Consumers demand more of a good the lower the price, holding everything else constant.

The law of demand is considered the most empirical finding in economics.

Demand curves generally slope downward. A mathematical relationship can be shown in a demand function.

It can be shown like this:
Q=D(abc,Y)

Whereas abc is the variants determining demand, Y is income, Q is quantity, and D is demand.

5. And, by consequence, consumers demand less of a good the higher the price.

6. Part 1 section 1 subsection 2

The supply curve generally slopes upward.

Mathematically the supply curve can be expressed like this:

Q=S(Sa, Sb)

Where as Q is quantity, S is supply, and Sa and Sb are variants (such as prices) determining supply.

Subsection 3

Market equilibrium is a situation where no consumer wants to change his or her behavior.

We can use algebra to determine equilibrium. Once the determents of the supply equation and demand equation are broken down, we set both of them equal to get the equilibrium point. So:

Supply equation:

Q=S(Sa, Sb)

Q=178+40P-60Ph

If Ph represents a price of a substitute, say, \$1.50, then we get:

Q=88+40P

Demand equation:

Q=D(abc,Y)

With prices algebraically factored:

Q=286-20P

To find equilibrium, we set the demand and supply equations equal:

286-(20P)=88+(40P)

If the price is \$3.30, then our equilibrium quantity is 220.

7. I don't like equations and your post is hard to read and very boring so I challenge you to a duel.

8. What I have demonstrated so far is very simple economics. I am showing it in algebraic form, that's all. Most of the time, in the real world, you will not use this.

9. Originally Posted by Jimbean
What I have demonstrated so far is very simple economics. I am showing it in algebraic form, that's all. Most of the time, in the real world, you will not use this.
It is not real economics. Real economics involves the distribution of goods and services.

10. Originally Posted by norph
It is not real economics. Real economics involves the distribution of goods and services.
Which can be demonstrated by doing what I am doing.

11. i vote for a jimbean youtube channel

i'd subscribe to you

12. Part 1 section 1 subsection 4

An event can cause a shift in what equilibrium is, such as a price change of a substitute. Governments or those who act like government (i.e. mafia) can also cause chances in equilibrium. Taxes cause a decrease in economic activity, but if the tax is then used to subsidize, the subsidy will increase economic activity in that certain area that it is used. Any government-like institution can change the free market dynamic in this way.

Governments can also set by law price controls. When a price control sets a price that is below the market equilibrium, the result is a shortage. The shortage is due to the excess demand that consumers have because they would otherwise be willing to pay a higher price and a supply shortage because the supplier wants to produce less at the set price.

Let’s look at it graphically:

http://economics.fundamentalfinance....ce-ceiling.JPG

This to me is self explanatory, but if anyone wants me to explain this I will.

There are also price floors (i.e. minimum wage laws) that by law forces what an employer must pay for labor. As a result an employer is less willing to hire extra workers or give them more hours.

Shown graphically here:

http://img.sparknotes.com/figures/0/...073a/floor.gif

Where Qd is quantity demanded and Qs is quantity supplied.

13. Okay, that's a bit simplicistic imho. Price caps affect the market with a large net loss of welfare as long as:

- the market is perfectly competitive (unrealistic assumption)
- the elasticity of demand is equal to 1

whenever the market is, say, an oligopoly (esp. with a leader-follower setting) or a monopoly, price caps can lead to a more efficient equilibrium, because firms aren't price-takers, thus they will set the price which will maximize their own revenues largely irrespective of consumer preferences. Let's also notice how monopolies and oligopolies are often found in markets with extremely inelastic demand, which means that a carefully tailored policy of price control might increase total welfare. Basically, elasticity of demand measures the slope of the demand curve, thus the higher its absolute value, the smaller the area of the triangle DWL will be (for slope -> infinity, area -> 0).

(more precisely: suppose a perfectly competitive market as "ideal world", the loss of welfare might be lower in a government-intervention equilibrium compared to the loss of welfare in an oligopolist or monopolist equilibrium)

14. Originally Posted by FDG
Okay, that's a bit simplicistic imho. Price caps affect the market with a large net loss of welfare as long as:

- the market is perfectly competitive (unrealistic assumption)
- the elasticity of demand is equal to 1

whenever the market is, say, an oligopoly (esp. with a leader-follower setting) or a monopoly, price caps can lead to a more efficient equilibrium, because firms aren't price-takers, thus they will set the price which will maximize their own revenues largely irrespective of consumer preferences. Let's also notice how monopolies and oligopolies are often found in markets with extremely inelastic demand, which means that a carefully tailored policy of price control might increase total welfare. Basically, elasticity of demand measures the slope of the demand curve, thus the higher its absolute value, the smaller the area of the triangle DWL will be (for slope -> infinity, area -> 0).

(more precisely: suppose a perfectly competitive market as "ideal world", the loss of welfare might be lower in a government-intervention equilibrium compared to the loss of welfare in an oligopolist or monopolist equilibrium)

Yeah, I was going to get to that later. I wanted to start with this concept for now.

15. Part 1 section 2 subsection 1

Elasticity: The percentage change in a variable in response to a given percentage change in another variable.

A good can be inelastic, elastic, or unit elastic. Basically, an inelastic good means that your consumption of that good is not as responsive to the change in price (1>ε) (such as internet access, gasoline, etc.). Consumption of an elastic good however is more responsive then the price (1<ε) (such as something you will only buy “on sale,” such as green vegetables, good beef, etc.) A unit Elastic (1) good is equal response in demand and price.

Price elasticity of demand (ε):

ε=%change in quantity demanded/% change in price. Or: (ΔQ/Q) / (Δp/p) = ε

(this is like finding a slope of a line in basic algebra)

A common misconception of demonstrating elasticity on a graph is often taught that the slope of the demand line (or curve) is the determining factor, which it is not. It is which side of the demand line or curve is relative to the center determines the elasticity of the good

This graph demonstrates the point:
http://www2.hawaii.edu/~rpeterso/graph_r.gif

This might be a choppy explanation to you folks. If it is, post your question(s) on this thread, and I will answer.

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