What is microeconomics
- the study of how individuals and firms make decision in a world of scarcity
- constrained optimization
- trade-offs(given your constrains), to make yourself as well off as possible
- important notion: opportunity cost
- dismal science: everthing has a price
- MIT is the perfect place to learn microeconamic(constrained conditions)
- microeconomic is infact fun engineering
Supply and Demand model
BEFORE THAT:
- we have models that are never 100% true
- but always pretty true
- trade-off between simplicity and accuracy
THREE LEVEL OF MODELS:
- intuitive
- graphical
- mathematical
All models are wrong, but some are useful
the demand and supply scissors—-Adam Smith
the meeting point is the equilibrium point
textbook example: eBay auction
positive analysis
the study of the way things are.
what will happen if you sell your kidney on eBay?
normative analysis:
the study of the way things should be.
should people be allowed to sell their body parts on eBay?
Market Failure
- fraud
- imperfect information
- 不完全信息差？
- behavioral economics
- people don’t necessarily make the most rational decision
How freely should a market operate?
- capital economic
- consumers and firms who serves their best interest will do what is the best for the whole society.——Adam Smith
- the definition of the best for the society: the most stuff gets produced and consumed, the maximum surplus
- command economic
- enormous space for corruption
- hard for government to foresee every opportunity
