Appunti microeconomics Moro

MICROECONOMICS

CLASS I

When we talk about economics or political economy, we mainly refer to big branches, which are microeconomics and macroeconomics.

The difference between the two is that microeconomics is mainly devoted to the analysis of how individuals make choices, so microeconomics studies the individual, by which we mean the economic unit, while macroeconomics is more related with the general economics, so it deals with the relation between aggregates variables and values (employment and unemployment, interest rate, inflations...).

Of course, there is a relation between the two because what can be seen on the macro level is the result of what individuals are doing.

INTRODUCTION

Microeconomics is founded on the evolution of the thinking in classical economics:

• Mercantilism (16^th- beginning 18^th century)
• Physiocracy (Quesnay: 18^th century)
• Classical Economics (Smith, Ricardo, Malthus, Mill: end 18^th- half 19^th century)
• Marxism (Marx: 19^th century)
• Neo-classical Economics (Marshall, Jevons, Walras, Pareto: end 19^th century-20^th century)
• Keynesian Economics (Keynes: 20^th century)
• Monetarism (Chicago, Milton Friedman, 20^th century)

ADAM SMITH

The main elements that are interesting in microeconomics are:

1. Efficiency of choices: something is efficient if there is no way we can do that in a better way There are different ideas of efficiency:
   • Economic Efficiency
   • Productive Efficiency (production process)
   • Allocative Efficiency
2. Social Optimality

The environment in which we are working, which is the market, because the reference of all microeconomics is the market, (from the 2 sides: demand and supply), what we're doing in the market and the way by which the market is working conducts to social optimality. So, market forces are working to produce the best possible outcome and if there are no particular situation the best result will be non-intervention (make the market work the way it likes).

HOW INDIVIDUALS MAKE CHOICES

An individual choice is the decision of a single decision unit (a consumer, a household, a firm, an agent …) on what to do

There are some basic principles that are related to choices:

• Resources are scarce: as individual units we have to make decisions, but we are limited in our choices and limitation constraints come from different sources.
• The real cost of something is what we give up getting it: opportunity cost Every time that we do something there is a cost, and the opportunity cost is a different idea of the cost, it is the value of what we have to give up by doing something, so it relates the value of something to the value of something else and it’s the real cost (not made by money, but by something concrete)
• “How much”: it is a decision at the margin (neo-classical)

MICROECONOMICS

CLASS I

When we talk about economics or political economy, we mainly refer to big branches, which are microeconomics and macroeconomics. The difference between the two is that microeconomics is mainly devoted to the analysis of how individuals make choices, so microeconomics studies the individual, by which we mean the economic unit, while macroeconomics is more related with the general economics, so it deals with the relation between aggregates variables and values (employment and unemployment, interest rate, inflations...). Of course, there is a relation between the two because what can be seen on the macro level is the result of what individuals are doing.

INTRODUCTION

Microeconomics is founded on the evolution of the thinking in classical economics:

• Mercantilism (16^th- beginning 18^th century)
• Physiocracy (Quesnay: 18^th century)
• Classical Economics (Smith, Ricardo, Malthus, Mill: end 18^th-half 19^th century)
• Marxism (Marx: 19^th century)
• Neo-classical Economics (Marshall, Jevons, Walras, Pareto: end 19^th century-20^th century)
• Keynesian Economics (Keynes: 20^th century)
• Monetarism (Chicago, Milton Friedman, 20^th century)

ADAM SMITH

The main elements that are interesting in microeconomics are:

1. Efficiency of choices: something is efficient if there is no way we can do that in a better way

   • There are different ideas of efficiency:
   • Economic Efficiency
   • Productive Efficiency (production process)
   • Allocative Efficiency

2. Social Optimality

   The environment in which we are working, which is the market, because the reference of all microeconomics is the market, (from the 2 sides: demand and supply), what we're doing in the market