1. Introduction and Supply & Demand
- Microeconomics - study of how individuals/firms make decisions in a world of scarcity. Microeconomics is the fundamentals, macro is the fun application of it.
- Scarcity drives microeconomics. Individuals/firms try to oprimise to become well-off.
- Opportunity cost - every action or inaction has a cost in that you could’ve been doing something else instead.
- It’s all about constained optimisation, principles you learn in engineering and applied to ecnomics and people instead of machines.
- All models are good but some are useful.
- Economics at it’s base is a very right wing science.
- Positive and normative analysis
- Positive analysis - study things as they are
- Normative analysis - study things on how they shoud be
- Normative Analysis
- Market failures - eg: fraud, imperfect information
- Behavorial Economics
- How freely must an economy function?
- America is capitalist free economy nation.
- It has led to tremendous growth.
- America is also the mosy unequal society, because 1% of population controls most of the money in the system
- It is also hard to apply laws to prevent fraud. eg: Enron
- Command economy or state capitalism
- Checks and balances are in the control of the government which leads to a lot of corruption
- Captialist economy has this kind of an invisible hand that fixes this problem.
- Adam Smith says “Individuals and firms acting in their own best interest would do what is best for the society.
- “Best” here means the most stuff being produced and consumed.
- Adam Smith - Wealth of Nations
- What is this invisible hand and does it really work?