Microeconomics
Notes
PART
I
Chapter
1
-
Introduction
●
An
optimizing
individual
is
a
selfish
jerk
●
The
main
assumption
of
economics
is
that
every
person
is
an
optimizing
individual
●
These
individuals
hold
on
to
their
assets,
believing
they
will
be
worth
more
in
the
future
●
All
optimizing
individuals
are
created
equal
●
That’ s
because
they
are
simply
people
trying
to
satisfy
their
own
preferences
●
Economics
is
about
the
actions
of
optimizing
individuals
and
the
interactions
between
them
●
Micr oeconomics
one
optimizing
individual,
the
interactions
between
two
or
more
of
them,
and
the
interaction
with
tons
of
them
○
It
is
mainly
focused
on
optimizing
individuals
●
Macr oeconomics
looks
at
bigger -picture
issues
that
affect
the
whole
economy ,
like
inflation,
unemployment,
and
economic
growth
●
The
big
question
of
microeconomics:
under
what
circumstances
does
individual
optimization
lead
to
outcomes
that
are
good
for
the
group
as
a
whole?
○
In
other
words:
when
I
do
what’ s
good
for
me,
and
you
do
what’ s
good
for
you,
and
everyone
else
does
what’ s
good
for
themselves,
when
are
the
results
good
for
all
of
us?
●
In
some
situations,
optimizing
individuals
lead
one
another
down
the
road
to
ruin
○
Each
individual
is
trying
to
do
what’ s
best
for
them,
but
the
result
is
that
others
lose
○
This
is
the
idea
of
the
tragedy
of
the
commons
●
In
other
situations,
optimizing
individuals
work
together
so
well
that
the
results
seem
miraculous
○
The
most
miraculous
miracle
is
how
competition
between
profit-maximizing
sellers
leads
to
lower
prices
for
consumers ●
The
idea
of
the
invisible
hand
says
the
self-interest
can
serve
the
common
good
○
This
metaphor
was
coned
by
Adam
Smith
in
1776
●
In
contrast
to
the
pessimism
of
the
tragedy
of
the
commons,
the
optimism
of
the
invisible
hand
suggests
that
the
world
can
look
heavenly
●
The
true
miracle
of
the
invisible
hand
is
that
in
certain
situations
the
world
will
look
heavenly
even
if
it's
full
of
selfish
jerks
Chapter
2
-
Decision
Trees
●
There
are
all
kinds
of
optimizing
individuals,
but
ultimately ,
all
optimizing
individuals
have
one
common
thing:
they
look
at
the
available
options
and
pick
the
best
one
●
Studying
how
individuals
make
optimal
decisions
is
hard,
so
economists
use
decision
trees
to
map
out
the
available
options
●
Sunk
costs
are
expenses
that
you’ll
never
get
back
○
It
makes
no
sense
to
base
your
whole
decision
on
a
sunk
cost
○
Sunk
costs
appear
in
all
options
of
a
decision
tree
●
When
economists
start
comparing
very
similar
choices,
we
enter
the
realm
of
marginal
analysis
●
Marginal
analysis
means
comparing
similar
choices
○
This
generates
powerful
insights
and
allows
us
to
translate
plain
english
into
economic
gibberish ●
Sunk
costs
matter
before
they
are
sunk
●
Before
investing
in
research
and
development,
companies
consider
a
variety
of
costs
and
benefits,
including
R&D
costs
and
projected
revenue,
but
aget
R&D
costs
are
sunk
they
don’t
affect
pricing
decisions
●
Marginal
analysis
is
what
affects
pricing
decisions
●
Companies
can
use
marginal
analysis
to
make
pricing
decisions
Chapter
3
-
Time
●
Money
today
and
money
tomorrow
can’t
be
directly
compared
Notes
PART
I
Chapter
1
-
Introduction
●
An
optimizing
individual
is
a
selfish
jerk
●
The
main
assumption
of
economics
is
that
every
person
is
an
optimizing
individual
●
These
individuals
hold
on
to
their
assets,
believing
they
will
be
worth
more
in
the
future
●
All
optimizing
individuals
are
created
equal
●
That’ s
because
they
are
simply
people
trying
to
satisfy
their
own
preferences
●
Economics
is
about
the
actions
of
optimizing
individuals
and
the
interactions
between
them
●
Micr oeconomics
one
optimizing
individual,
the
interactions
between
two
or
more
of
them,
and
the
interaction
with
tons
of
them
○
It
is
mainly
focused
on
optimizing
individuals
●
Macr oeconomics
looks
at
bigger -picture
issues
that
affect
the
whole
economy ,
like
inflation,
unemployment,
and
economic
growth
●
The
big
question
of
microeconomics:
under
what
circumstances
does
individual
optimization
lead
to
outcomes
that
are
good
for
the
group
as
a
whole?
○
In
other
words:
when
I
do
what’ s
good
for
me,
and
you
do
what’ s
good
for
you,
and
everyone
else
does
what’ s
good
for
themselves,
when
are
the
results
good
for
all
of
us?
●
In
some
situations,
optimizing
individuals
lead
one
another
down
the
road
to
ruin
○
Each
individual
is
trying
to
do
what’ s
best
for
them,
but
the
result
is
that
others
lose
○
This
is
the
idea
of
the
tragedy
of
the
commons
●
In
other
situations,
optimizing
individuals
work
together
so
well
that
the
results
seem
miraculous
○
The
most
miraculous
miracle
is
how
competition
between
profit-maximizing
sellers
leads
to
lower
prices
for
consumers ●
The
idea
of
the
invisible
hand
says
the
self-interest
can
serve
the
common
good
○
This
metaphor
was
coned
by
Adam
Smith
in
1776
●
In
contrast
to
the
pessimism
of
the
tragedy
of
the
commons,
the
optimism
of
the
invisible
hand
suggests
that
the
world
can
look
heavenly
●
The
true
miracle
of
the
invisible
hand
is
that
in
certain
situations
the
world
will
look
heavenly
even
if
it's
full
of
selfish
jerks
Chapter
2
-
Decision
Trees
●
There
are
all
kinds
of
optimizing
individuals,
but
ultimately ,
all
optimizing
individuals
have
one
common
thing:
they
look
at
the
available
options
and
pick
the
best
one
●
Studying
how
individuals
make
optimal
decisions
is
hard,
so
economists
use
decision
trees
to
map
out
the
available
options
●
Sunk
costs
are
expenses
that
you’ll
never
get
back
○
It
makes
no
sense
to
base
your
whole
decision
on
a
sunk
cost
○
Sunk
costs
appear
in
all
options
of
a
decision
tree
●
When
economists
start
comparing
very
similar
choices,
we
enter
the
realm
of
marginal
analysis
●
Marginal
analysis
means
comparing
similar
choices
○
This
generates
powerful
insights
and
allows
us
to
translate
plain
english
into
economic
gibberish ●
Sunk
costs
matter
before
they
are
sunk
●
Before
investing
in
research
and
development,
companies
consider
a
variety
of
costs
and
benefits,
including
R&D
costs
and
projected
revenue,
but
aget
R&D
costs
are
sunk
they
don’t
affect
pricing
decisions
●
Marginal
analysis
is
what
affects
pricing
decisions
●
Companies
can
use
marginal
analysis
to
make
pricing
decisions
Chapter
3
-
Time
●
Money
today
and
money
tomorrow
can’t
be
directly
compared
