Microeconomics Notes

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Microeconomics Chapter 1 1.1 The scarcity principle (also called the no-free-lunch principle). Although we have boundless needs and wants, the resources available to us are limited. Consequently, having more of one good thing usually means having less of another. 1.2 The cost-benefit principle. An individual (or a firm, or a society) should undertake a particular action if, and only if, the extra benefits of undertaking that action are at least as great as the extra costs. 1.3 Economic Surplus is the gain that results from undertaking an action when the benefits outweigh the costs. Simply, it is the difference between the benefit and its cost. Opportunity cost is the value of the next-best alternative to undertaking a particular action. The incentive principle. A person (or firm, or society) is more (less) likely to undertake an action if its benefit (cost) rises, and less (more) likely to undertake it if its cost (benefit) rises. In short, incentive matter, and can be powerful in shaping economic choices. Predicting how people's behaviour will be affected when the incentives they face change is the role of positive economic analysis. In contrast, normative economics is concerned with statements about what actions should or ought to be undertaken. 1.4 A sunk cost is a cost that cannot be recovered at the moment a decision is made. Chapter 2 2.1 The principle of comparative advantage is everyone can do better when each person (or each country) concentrates on the activities for which their opportunity cost is lowest (or for which they have a comparative advantage) 2.2 Production Possibility Curve (PPC) is a graph that describes the maximum amount of one good that can be produced for every possible level of production for another good. Example: Tom has a comparative advantage in nuts because his PPC has a flatter slope on the nuts axis.

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Notes for Microeconomics Wgu

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...COPYRIGHT NOTICE: Ariel Rubinstein: Lecture Notes in Microeconomic Theory is published by Princeton University Press and copyrighted, c 2006, by Princeton University Press. All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher, except for reading and browsing via the World Wide Web. Users are not permitted to mount this file on any network servers. Follow links for Class Use and other Permissions. For more information send email to: permissions@pupress.princeton.edu Lecture Notes in Microeconomic Theory Ariel Rubinstein Updates to the Printed Version The file you are viewing contains the printed version of the book. In relevant places throughout the text you will find small icons indicating the existence of updates to the text: A red icon indicates there is a correction for a mistake on this line. A green icon indicates an addition to the text at this point. The corrected and added text can be obtained from the author's homepage at http://arielrubinstein.tau.ac.il/ . October 21, 2005 12:18 master Sheet number 1 Page number 1 October 21, 2005 12:18 master Sheet number 2 Page number 2 October 21, 2005 12:18 master Sheet number 3 Page number i Lecture Notes in Microeconomic Theory October 21, 2005 12:18 master Sheet number 4 Page number ii October......

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