Microeconomics Third Edition

Chapter 1 First Principles

Copyright © 2013 by Worth Publishers

Paul Krugman and Robin Wells

Table 1.1 The Principles of Individual Choice Krugman and Wells: Microeconomics, Third Edition Copyright © 2013 by Worth Publishers

Table 1.2 The Principles of the Interaction of Individual Choices Krugman and Wells: Microeconomics, Third Edition Copyright © 2013 by Worth Publishers

Table 1.3 The Principles of Economy-Wide Interactions Krugman and Wells: Microeconomics, Third Edition Copyright © 2013 by Worth Publishers

closing thoughts/words of warning 1. Economists have a vocabulary and a language all their own – taking perfectly respectable words and giving them a new meaning! (so, don’t get fooled!) e.g.: normal goods, inferior goods elasticity marginal product firms are delighted to earn zero profit ceteris paribus normative economics, positive economics 2. Economics uses economic models – deliberately simplified

descriptions of reality, to bring out key ideas

3. Economics uses empirical analysis as well as theoretical models (see “Econometrics” in Part 3 of the syllabus) – run theories up

against the data! 4. Economics isn’t only about money, and it doesn’t insist that money

is everything: economic analysis of studying, going to office hours, falling asleep in class, dating, marriage…

graphs and graphing: read Chapter 2 Appendix for more!!!

coordinates on X, Y axes: (x, y) x = coordinate on X axis, y = coordinate on Y axis e.g., (12,19)

Slope of a straight line: = “rise” divided by “run” = change in Y, divided by change in X = Δy/Δx (Δ = “change in”) intercept: value of y when x = 0; where line runs into vertical axis (Another warning: in economics, the “Y” variable is sometimes on the horizontal axis!)

y

slope of any line: gradient = slope of line between two points on the line = Δy/Δx tangent = slope of line that just touches the curve = value of gradient for a very small change in x = limiting value of Δy/Δx, as Δx → 0 elasticity (“responsiveness”) of Y with respect to X: elasticity = % change in Y (the “effect”) = (Δy/y) = Δy x % change in X (the “cause”) (Δx/x) Δy y