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
Equity/Equality
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.
Notable people
Adam Smith - Wealth of Nations
Open questions
What is this invisible hand and does it really work?