Deep Thought
I can picture in my mind a
world without war, a world
without hate. And I can
picture us attacking that
world, because they’d never
expect it. --- by Jack
Handey.
BA 210 Lesson I.1 Introduction
1
Welcome to BA 210
Introduction to Microeconomics
Acknowledgements
Much of the course content is
adapted from the textbook
Microeconomics by Paul
Krugman, Nobel Laureate (and
former teacher of Jon Burke),
second edition, published by
Worth Publishers © 2009.
The PowerPoint slides for the
lessons are your primary text.
Read the Krugman text for
more details as you see fit.
BA 210 Lesson I.1 Introduction
2
Welcome to BA 210
Introduction to Microeconomics
Getting acquainted
What is Microeconomics?
Microeconomics is a list of assumptions and their consequences
that helps consumers make satisfying choices, helps managers
make profitable decisions, and helps governments make effective
public policies. Economists follow the path of pure logic, and
leave passions and emotions for the people they try to help.
BA 210 Lesson I.1 Introduction
3
Welcome to BA 210
Introduction to Microeconomics
Getting started
Read and bookmark the online course syllabus.
http://faculty.pepperdine.edu/jburke2/ba210/index.htm
It serves as a contract specifying our obligations to each other.
(You may need Internet Explorer.) In particular, note:
• High School Algebra is a prerequisite, so review as needed.
• Before each class meeting, download and read the
PowerPoint lesson, as presented under the “Schedule” link.
• After each class meeting, answer any assigned homework
questions. And answer some of the review questions at the
end of the PowerPoint lesson. If you get stuck on some
question, review as needed the PowerPoint lesson or the
Krugman text or my answers.
BA 210 Lesson I.1 Introduction
4
Lesson Overview
Chapter 1 First Principles
You may dislike Microeconomics, if …
What is Theory?
Microeconomic Assumptions
Testing Selfishness
Revealed Preference
Controversy: Who is poor?
Summary
Review Questions
BA 210 Lesson I.1 Introduction
5
You may dislike Microeconomics, if …
You may dislike Microeconomics, if …
You hold to economic dogma. Many lifelong Democrats and
many lifelong Republicans hold established beliefs about public
policies that are not to disputed, doubted, or diverged from.
You are a political hack personally identified with a political
party, and are driven more by success of the party than by
personal conviction about the effectiveness of a particular public
policy.
Your concern for public policy is driven more by self interest than
by personal conviction.
BA 210 Lesson I.1 Introduction
6
What is Theory?
Theory helps you understand facts. Economic theorizing is often
attempted, but is not always logical.
For instance, you might argue the government should reform
health care because of the fact that poor people get worse care
than rich people. That poor people get worse care is a fact; no
theory is needed. But when you conclude that health care should
be reformed, you theorize.
BA 210 Lesson I.1 Introduction
7
What is Theory?
Common arguments for reforming health care implicitly assume
some type of equality among people is socially desirable. But
what should be equal? For example, it may seem reasonable to
assume that equality of happiness among people is socially
desirable. However, it does not seem reasonable that equality of
consumption is socially desirable, as if Barack should eat just as
many bananas as Bill. So if we treat medical care like bananas, it
may not seem reasonable to assume that equality of medical care
is socially desirable.
BA 210 Lesson I.1 Introduction
8
What is Theory?
Put another way, suppose there were equal health care between
rich and poor. What would happen?
How would you respond if Bill Gates offered a million dollars for
some of your care? For example, would you sell him your place
in line for a blood test? to set a broken bone? for an artificial
heart?
Is equal health care with the rich the best thing you can give the
poor? What would the poor prefer?
BA 210 Lesson I.1 Introduction
9
Microeconomic Assumptions
Microeconomic Theory is founded on three Assumptions. Those
assumptions are a checklist for when microeconomics can help
consumers make satisfying choices, help managers make
profitable decisions, and help governments make effective public
policies.
BA 210 Lesson I.1 Introduction
10
Microeconomic Assumptions
To make precise assumptions, we must first speak the same
language. In price theory, words like “commodity” and “utility”
take more precise definitions than in common usage.
BA 210 Lesson I.1 Introduction
11
Microeconomic Assumptions
The Definition of Commodities and Goods
The basic object in economic theory is a commodity, defined to
be anything that can be measured and traded between people.
Commodities can be physical goods, like apples or Cuban cigars;
or services, like haircuts or medical care. Some commodities are
undesirable, like smog, but their opposites, like clean air, are
desirable. This class mostly considers desirable commodities,
which we also call goods.
Name some commodities. Are kids commodities? Is time a
commodity? How do you measure time? trade time?
BA 210 Lesson I.1 Introduction
12
Microeconomic Assumptions
I don't care too much for money, money can't buy me love
--- The Beatles.
Assumption 1: Anything that affects happiness or satisfaction is
a commodity.
Economics thus considers how people’s happiness is effected by
cars, kids, and free time. But economics does not directly
consider whether kids are loved by their parents, since love is not
a commodity.
BA 210 Lesson I.1 Introduction
13
Microeconomic Assumptions
Don’t confuse assumptions with presumptions. You “presume”
when you believe a proposition is a fact; you “assume” when you
accept a proposition as a fact for a particular purpose.
Microeconomists assume anything that affects happiness is a
commodity because the microeconomic way of logical thinking
does not yield helpful conclusions about non-commodities like
love.
If you are love sick or sick of love, see a psychologist, not a
microeconomist.
BA 210 Lesson I.1 Introduction
14
Microeconomic Assumptions
The Definition of Consumption and Consumer
Consumption is when a commodity is used; a consumer does the
consumption.
A consumer can be an individual, or a household, or a family
dynasty (Kennedy’s), or an institution (Pepperdine University), or
a country (United States), or all humankind.
The default definition of a consumer is a household, which is a
person or a group of people living in the same residence.
BA 210 Lesson I.1 Introduction
15
Microeconomic Assumptions
The Definition of Utility
Through consumption, a consumer generates happiness and
satisfies his needs, wants, and desires. The happiness or
satisfaction generated is measured by the quantity of utility.
The definition of utility separates microeconomics from
psychology, which treats needs, wants, and desires differently.
Combining needs, wants, and desires simplifies microeconomics.
If your job meets your physical needs but leaves you feeling
empty because you have not realized your own maximum
potential, see a psychologist, not a microeconomist.
BA 210 Lesson I.1 Introduction
16
Microeconomic Assumptions
The best things in life are free
But you can give them to the birds and bees
I want money
--- The Flying Lizards.
http://www.stlyrics.com/lyrics/empirerecords/moneythatswhatiwant.htm
Assumption 2: Individual households are perfectly selfish or
self-interested, concerned only with the utility they get from their
own consumption of commodities.
 Parents can care about kids within their own household, but
not about kids in other households.
 Is that the way households should be?
 Is that the way most households are?
BA 210 Lesson I.1 Introduction
17
Microeconomic Assumptions
The assumption of perfect selfishness might, at first, seem harsh
and extreme. — Would you care if your neighbor’s car were
stolen?
But while selfishness rules out benevolence (like concern for the
poor), it also rules out malevolence. — Would you care if your
neighbor just got a car that is twice as good as yours?
Thus, the assumption of perfect selfishness takes a middle
ground, with real people on either side. Perhaps, the
approximation errors from ignoring benevolence offset the
approximation errors from ignoring malevolence.
BA 210 Lesson I.1 Introduction
18
Microeconomic Assumptions
“nosce te ipsum” (know yourself)
--- The Oracle from The Matrix
Assumption 3: People are rational. They are perfect calculators
and flawless followers of those choices that are in their own best
interests.
Rationality is a debatable assumption:
 Do you know what makes you happy?
 Ever made a bad choice?
 Do you know exactly how much money you have in your
pocket? Or how much you could get from your parents?
BA 210 Lesson I.1 Introduction
19
Testing Selfishness
To test the assumption of perfect selfishness, ask:
do citizens vote in their self interest?
 Which American political party favors the rich?
 Are Republicans richer than Democrats?
BA 210 Lesson I.1 Introduction
20
Testing Selfishness
Extra Credit: Take a survey of the selfishness of at least 10
random people. Ask what percent of their salary that they donated
to charity this year or that they gave to someone outside their
household or family. Ignore answers like “I only gave 1 percent,
but I would like to have given more” or “next year, I plan to give
more”. It is important you measure the selfishness of an entire
household or family. Parents giving to children does not count.
It is also important you conduct a random survey. Do not, for
example, go to church and pole missionaries or pole the Amish.
Based on your survey, is the assumption of perfect selfishness
realistic? If not 100 percent true, is the assumption of perfect
selfishness at least 95 percent true?
BA 210 Lesson I.1 Introduction
21
Revealed Preference
Are Americans happier than Italians? Are Americans happier today than 30
years ago? Of course, any answer is debatable: some may believe that
Americans are inherently different from Italians and so cannot be compared.
Microeconomics aims to make comparisons through the assumption that
commodities are all that matter. Namely, to determine which country or which
year is better, compare the consumption of commodities.
Even using microeconomics, however, such comparisons may be hard. For
example, while Americans have bigger houses than Italians, they may consume
less (quality) food. So we need to know whether extra housing is worth
sacrificing food. Likewise, while houses are larger today than 30 years ago,
there may be less leisure time. The theory of revealed preferences helps make
such hard consumption comparisons. The key is to ask whether one
consumption item or bundle of items (like 1500 square feet of housing and 3
hours of leisure) was available when the other consumption bundle (like 1400
square feet of housing and 4 hours of leisure) was chosen; if so, then the
chosen bundle is preferred.
BA 210 Lesson I.1 Introduction
22
Revealed Preference
Question: Are Americans happier than Italians? Consider typical
monthly consumption:
Who is happier?
Price of Housing
Price of Food
Square Feet of Housing
Quantity/quality of food
American
Italian
$1
$2
1500
100
€2
€1
800
200
BA 210 Lesson I.1 Introduction
23
Revealed Preference
Who is happier?
Price of Housing
Price of Food
Square Feet of Housing
Quantity/quality of food
American
Italian
$1
$2
1500
100
€2
€1
800
200
Answer: Typical Americans consumers spend
1 × 1500 + 2 × 100 = 1700 dollars
with which they could afford Italian consumption, since it costs
only
1 × 800 + 2 × 200 = 1200 dollars.
Conclusion: Americans are happier.
Note: Italians cannot afford American consumption. Typical
Italian consumers spend 2×800 + 1×200 = 1800 euros, but
American consumption would cost 2×1500 + 1×100 = 3100 euros
BA 210 Lesson I.1 Introduction
24
Revealed Preference
Question: Are Americans happier today than 30 years ago?
Consider typical monthly consumption:
Who is happier?
Price of Housing
Price of Food
Price of Clothing
Square Feet of Housing
Quantity/quality of food
Quantity/quality of clothing
T oday
30 Years Ago
$1
$2
$30
1500
100
2
$2
$1
$30
1400
150
3
BA 210 Lesson I.1 Introduction
25
Revealed Preference
Who is happier?
Price of Housing
Price of Food
Price of Clothing
Square Feet of Housing
Quantity/quality of food
Quantity/quality of clothing
T oday
30 Years Ago
$1
$2
$30
1500
100
2
$2
$1
$30
1400
150
3
Answer: Today’s consumers spend
1 × 1500 + 2 × 100 + 30 × 2 = 1760 dollars
with which they cannot afford the consumption of 30 years ago, since it would
cost (at today’s prices)
1 × 1400 + 2 × 150 + 30 × 3 = 1790 dollars.
30-years-ago consumers spend (at prices from 30 years ago)
2 × 1400 + 1 × 150 + 30 × 3 = 3040 dollars
with which they cannot afford the consumption of today’s consumers, since it
would cost (at prices from 30 years ago)
2 × 1500 + 1 × 100 + 30 × 2 = 3160 dollars.
Revealed preference is inconclusive in this case.
BA 210 Lesson I.1 Introduction
26
Controversy: Who is Poor?
Controversy: Who is Poor?
BA 210 Lesson I.1 Introduction
27
Controversy: Who is Poor?
Controversy: Who is Poor?
The standard definition of “poor” in the U.S increases with the
size of a family.
2009 U.S. Poverty Levels
Persons in Family
T hreshold
1
2
3
4
5
$10,830
$14,570
$18,310
$22,050
$25,790
BA 210 Lesson I.1 Introduction
28
Controversy: Who is Poor?
In particular, two adults are “poor” if their
yearly income is $14,570 or less. Make
sense?
2009 U.S. Poverty Levels
Persons in Family
Threshold
1
2
3
4
5
$10,830
$14,570
$18,310
$22,050
$25,790
BA 210 Lesson I.1 Introduction
29
Controversy: Who is Poor?
Question: Compare two families. A small
family of two adults with an income of
$15,000 per year; they are not considered
“poor”. A big family of two adults and
3 small kids with an income of $16,220;
they are considered “poor”.
2009 U.S. Poverty Levels
Persons in Family
Threshold
1
2
3
4
5
$10,830
$14,570
$18,310
$22,050
$25,790
Is the “poor” big family happier than the non-“poor” small
family?
BA 210 Lesson I.1 Introduction
30
Controversy: Who is Poor?
2009 U.S. Poverty Levels
Persons in Family
Threshold
1
2
3
4
5
$10,830
$14,570
$18,310
$22,050
$25,790
Answer: The “poor” big family is happier if you treat kids as a
consumption commodity; the two adults in the “poor” big family
could have used birth control and, with their higher income,
chosen the consumption of the non-“poor” small family but
rejected it.
BA 210 Lesson I.1 Introduction
31
Controversy: Who is Poor?
Even if policymakers did not adjust for family size, measuring
poverty by income is still controversial because it does not
account for the consumption of leisure, or free time. Many
people have low incomes because they are unemployed, meaning
they have more leisure. Some “poor” families can be happier
than non-“poor” families if you treat leisure as a consumption
commodity.
BA 210 Lesson I.1 Introduction
32
Controversy: Who is Poor?
2009 U.S. Poverty Levels
Question: Compare two single-adult
households. Adult A is unemployed with an Persons in Family Threshold
1
$10,830
income of $0 per year; he is considered
2
$14,570
“poor”. Adult B works 8 hours every day at
3
$18,310
$10 per hour; his income is $29,200 per
4
$22,050
year; he is not considered “poor”.
5
$25,790
Who is happier?
BA 210 Lesson I.1 Introduction
33
Controversy: Who is Poor?
Answer: Revealed preference can determine who is happier if we
knew how much money the unemployed Adult A would earn if he
chose to work, and we knew the prices each adult has to pay for
consumption goods.
BA 210 Lesson I.1 Introduction
34
Controversy: Who is Poor?
To keep the problem simple, suppose Adult A could make $12 per
hour. Consider the hypothetical case where the only two goods
are leisure and housing. Measure the consumption of those two
goods daily. Suppose Adult A lives in Los Angeles and faces a
housing price of $0.11 per square foot, and Adult B lives in
Chicago and faces a housing price of $0.10 per square foot. Here
is the price and consumption data of the two adults, where the
price of each hour of leisure is dollars lost from not working that
hour:
Who is Poor? Who is happier?
Price of Housing
Price of Leisure
Square Feet of Housing
Hours of Leisure
Adult A
Adult B
$0.11
$12
0
24
$0.10
$10
800
16
BA 210 Lesson I.1 Introduction
35
Controversy: Who is Poor?
Who is Poor? Who is happier?
Adult A has 24 hours of
Adult A
Adult B
leisure since he does not work.
Price of Housing
$0.11
$0.10
He has zero income, and so
Price of Leisure
$12
$10
cannot afford any housing.
Square Feet of Housing
0
800
Hours of Leisure
Adult B has 16 hours of
24
16
leisure since he works 8 hours per day. He has income $80, and
so can afford 800 square feet of housing.
Can Adult A afford the consumption of Adult B? Adult A spends
$0.11 x 0 + $12 x 24 = $288 per day.
And to consume like Adult B would cost Adult A
$0.11 x 800 + $12 x 16 = $280 per day.
So, yes, Adult A can afford the consumption of Adult B. The fact
that Adult A rejects the consumption of B means Adult A is
happier.
BA 210 Lesson I.1 Introduction
36
Summary
Summary
1. The basic object in economic theory is a commodity, defined
to be anything that can be measured and traded between
people.
2. Microeconomic Theory is founded on three Assumptions.
Those assumptions are a checklist for when microeconomics
can help consumers, managers, or policymakers.
3. Assumption 1: Anything that affects happiness or
satisfaction is a commodity.
4. The default definition of a consumer is a household, which is
a person or a group of people living in the same residence.
BA 210 Lesson I.1 Introduction
37
Summary
Summary (continued)
5. Through consumption, a consumer generates happiness and
satisfies his needs, wants, and desires. The happiness or
satisfaction generated is measured by the quantity of utility.
6. Assumption 2: Individual households are perfectly selfish or
self-interested, concerned only with the utility they get from
their own consumption of commodities.
7. Assumption 3: People are rational. They are perfect
calculators and flawless followers of those choices that are in
their own best interests.
8. Revealed preferences asks whether one consumption item or
bundle of items was available when another consumption
bundle was chosen; if so, then the chosen bundle is preferred.
BA 210 Lesson I.1 Introduction
38
Review Questions
Review Questions
 You should try to answer some of the following questions
before the next class.
 You will not turn in your answers, but students may request
to discuss their answers to begin the next class.
 Your upcoming Exam 1 and cumulative Final Exam will
contain some similar questions, so you should eventually
consider every review question before taking your exams.
BA 210 Lesson I.1 Introduction
39
Review Questions
Each of the following 4 questions about revealed preference
assumes there are only three goods that matter: computers, food
and movies. The first question is so simple that you do not need
to use revealed-preference theory. And the final question is so
hard that revealed-preference theory gives no conclusions.
BA 210 Lesson I.1 Introduction
40
Review Questions
Question 1: Consider the following price and consumption
information for the typical Japanese consumer:
Which year is preferred?
Price of Computers
Price of Food
Price of Movies
Consumption of Computers
Consumption of Food
Consumption of Movies
1980
2010
¥4
¥2
¥1
1
2
3
¥8
¥4
¥2
1
2
3
BA 210 Lesson I.1 Introduction
41
Review Questions
Which year is preferred?
Answer 1: Step 1: Compare
1980
consumptions. Here, the two
Price of Computers
¥4
year’s consumptions, (1, 2, 3)
Price of Food
¥2
Price of Movies
¥1
and (1, 2, 3), are identical.
Consumption of Computers
1
[In vector notation, consumption Consumption of Food
2
(1, 2, 3) denotes consumption
Consumption of Movies
3
of 1 computer, 2 units of food, and 3 movies.]
2010
¥8
¥4
¥2
1
2
3
Hence, since microeconomics assumes that consumption alone
determines utility, that utility is the same in either year; that is,
neither year is preferred to the other.
BA 210 Lesson I.1 Introduction
42
Review Questions
Question 2: Consider the following price and consumption
information for the typical English consumer:
Which year is preferred?
Price of Computers
Price of Food
Price of Movies
Consumption of Computers
Consumption of Food
Consumption of Movies
1980
2010
£4
£2
£1
1
2
3
£2
£2
£2
2
2
2
BA 210 Lesson I.1 Introduction
43
Review Questions
Which year is preferred?
Answer 2: Step 1: Compare
1980
2010
consumptions. Here, the two
Price of Computers
£4
£2
year’s consumptions, (1, 2, 3)
Price of Food
£2
£2
Price of Movies
£1
£2
and (2, 2, 2), are incomparable:
Consumption of Computers
1
2
the former has less of good 1;
Consumption of Food
2
2
the latter, less of good 3. Hence, Consumption of Movies
3
2
continue the analysis.
Step 2: Ask whether 1980’s consumption, (1, 2, 3), was
affordable in 2010? Answer: In 2010 you had income determined
by the budget equation,
y = p1x1 + p2x2 + p3x3 = 2 × 2 + 2 × 2 + 2 × 2 = 12
while the cost of 1980’s consumption would have been
p1x1 + p2x2 + p3x3 = 2 × 1 + 2 × 2 + 2 × 3 = 12
Thus you could have had 1965’s consumption in 1990. Hence:
Stop the analysis. Conclusion: 2010 is preferred to 1980.
BA 210 Lesson I.1 Introduction
44
Review Questions
Question 3: Consider the following price and consumption
information for the typical Vietnamese consumer:
Which year is preferred?
Price of Computers
Price of Food
Price of Movies
Consumption of Computers
Consumption of Food
Consumption of Movies
1980
2010
4₫
2₫
1₫
1
2
9
8₫
4₫
2₫
2
2
2
BA 210 Lesson I.1 Introduction
45
Review Questions
Which year is preferred?
Answer 3: Step 1: Compare
1980
2010
consumptions. Here, the two
Price of Computers
4₫
8₫
year’s consumptions, (1, 2, 9)
Price of Food
2₫
4₫
Price of Movies
1₫
2₫
and (2, 2, 2), are incomparable:
Consumption of Computers
1
2
the former has less of good 1;
Consumption of Food
2
2
the latter, less of good 3. Hence, Consumption of Movies
9
2
continue the analysis.
Step 2: Ask whether 1980’s consumption, (1, 2, 9), was
affordable in 2010? Answer: In 2010 you had income determined
by the budget equation,
y = p1x1 + p2x2 + p3x3 = 2 × 2 + 2 × 2 + 2 × 2 = 12
while the cost of 1980’s consumption would have been
p1x1 + p2x2 + p3x3 = 2 × 1 + 2 × 2 + 2 × 9 = 24
Thus you could not have had 1980’s consumption in 2010.
Hence: Continue the analysis.
BA 210 Lesson I.1 Introduction
46
Review Questions
Which year is preferred?
Price of Computers
Price of Food
Price of Movies
Consumption of Computers
Consumption of Food
Consumption of Movies
1980
2010
4₫
2₫
1₫
1
2
9
8₫
4₫
2₫
2
2
2
Step 3: Ask whether 2010’s consumption, (2, 2, 2), was
affordable in 1980? Answer: In 1980 you had income determined
by the budget equation,
y = p1x1 + p2x2 + p3x3 = 4 × 1 + 2 × 2 + 1 × 9 = 17
while the cost of 1980’s consumption would have been
p1x1 + p2x2 + p3x3 = 4 × 2 + 2 × 2 + 1 × 2 = 14
Thus you could have had 2010’s consumption in 1980.
Conclusion: 1980 is preferred to 2010.
BA 210 Lesson I.1 Introduction
47
Review Questions
Question 4: Consider the following price and consumption
information for the typical Korean consumer:
Which year is preferred?
Price of Computers
Price of Food
Price of Movies
Consumption of Computers
Consumption of Food
Consumption of Movies
1980
2010
₩4
₩2
₩1
1
2
4
₩2
₩2
₩2
2
2
2
BA 210 Lesson I.1 Introduction
48
Review Questions
Which year is preferred?
Answer 4: Step 1: Compare
1980
consumptions. Here, the two
Price of Computers
4₫
year’s consumptions, (1, 2, 4)
Price of Food
2₫
Price of Movies
1₫
and (2, 2, 2), are incomparable:
Consumption of Computers
1
the former has less of good 1;
Consumption of Food
2
the latter, less of good 3. Hence, Consumption of Movies
9
continue the analysis.
Step 2: Ask whether 1980’s consumption, (1, 2, 9), was
affordable in 2010? Answer: In 2010 you had income
y = p1x1 + p2x2 + p3x3 = 2 × 2 + 2 × 2 + 2 × 2 = 12
while the cost of 1980’s consumption would have been
p1x1 + p2x2 + p3x3 = 2 × 1 + 2 × 2 + 2 × 4 = 14
Thus you could not have had 1980’s consumption in 2010.
Hence: Continue the analysis.
BA 210 Lesson I.1 Introduction
2010
8₫
4₫
2₫
2
2
2
49
Review Questions
Which year is preferred?
Price of Computers
Price of Food
Price of Movies
Consumption of Computers
Consumption of Food
Consumption of Movies
1980
2010
4₫
2₫
1₫
1
2
9
8₫
4₫
2₫
2
2
2
Step 3: Ask whether 2010’s consumption, (2, 2, 2), was
affordable in 1980? Answer: In 1980 you had income
y = p1x1 + p2x2 + p3x3 = 4 × 1 + 2 × 2 + 1 × 4 = 12
while the cost of 1980’s consumption would have been
p1x1 + p2x2 + p3x3 = 4 × 2 + 2 × 2 + 1 × 2 = 14
Thus you could not have had 2010’s consumption in 1980.
Hence, no preference is revealed.
BA 210 Lesson I.1 Introduction
50
Review Questions
Follow the link
http://faculty.pepperdine.edu/jburke2/ba210/PowerP1/Set1Answers.pdf
for review questions for Lessons I.1 and I.2 (next time) that practice these
skills:
 Identify and compute opportunity costs.
 Use marginal analysis to make a decision by comparing the marginal benefit
to the marginal cost: increase quantity as long as the marginal benefit is
greater than marginal cost.
 Describe how a voluntary trade makes a rational person better off (happier,
more satisfied, …)
 Describe trade when one party is relatively better at producing Good X than
another party, and relatively worse at producing Good Y.
 Describe and identify an equilibrium as a rest point, or stationary point.
 Describe and identify efficiency as when all opportunities for improvement
without hurt are exhausted.
 Show how incentives affect decisions.
 Describe how incentives can restore efficiency.
BA 210 Lesson I.1 Introduction
51
BA 210
Introduction to Microeconomics
End of Lesson I.1
BA 210 Lesson I.1 Introduction
52