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Chapter 1
Microeconomics
study of how households & firms make decisions and interact in markets.
Coordination problem
a situation in which people could all be better off- ( or some wouldn't be worse off), if they coordinate their actions than acting individually
- if not: coordination failure
External effects
your action affects other people's outcome/ utility
Institutions
Laws, informal rules& conventions that give social interactions a durable structure
Game Theory
an analyse of how the outcomes of interactions will depend on the rules of the game and the objective of players
Startegic Interactions
when participants are independent and are aware of this independence
Nash equilibrium
- mutual best response
All players are playing their best response to all the other players. No player has a reason to change its strategy as long as the ither players don't change theirs
Chapter 2
Economics
how agents choose to allocate scarce, resources & how they affect society
scarce resources
amount desired exceeds amount available (knappe Ressourcen)
Microeconomics (def.2)
how individuals, households, businesses, governments make decisions & how they affect prices, economic well being of allocation of resources
Optimization
agents choose best possible option given the information that is available
- Preferences
- Beliefs
- Constraints
Trade offs
some benefits have to be given up in order to gain others
budget constraint
set of things somebody chooses without breaking the budget
Opportunity cost
costs deriving from not being able to choose the next best alternative
Cost-benefit analysis
calculation that identifies the best option
- adds benefits & subtracts cost
Equilibrium
nobody would benefit by changing their behavior
Empiricism
use data-> test theories & check what causes specific outcomes
- evidence based analysis
models
simplified descriptions of the world
Hypothesis
a model's predictions
Correlation
two variables move in the same direction
Causality
change in one variable causes change in other
Chapter 3
Optimum
best possible choice
Optimum -> based on total value
- common units
- calculate total benefit net
- choose alternative with highest net profit
Marginal analysis
examines how costs and benefits are related to change
Marginal cost
additional cost associated with one more unit being produced
- Example: extra cost generated by moving from one alternative to the next
Chapter 4
Markets
group of economic agents who trade goods/ services and rules for trading
Perfectly competitive markets
- same price
- identical product
- price takers
Quantity demanded
amount of a good that buyers are willing to purchase at a given price