Paul Krugman and Robin Wells
Microeconomics
Third Edition
Chapter 1
First Principles
Copyright © 2013 by Worth Publishers
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)
y
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!)
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