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Eco 1104 - Summary Economics - Microeconomics
(University of Ottawa)
Introduction to Microeconomics (University of Ottawa)
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Ch 1: Microeconomics and Life
Economics: the study of how people manage resources.
Microeconomics: the study of how individuals and firms manage resources
Macroeconomics: the study of the economy on a regional, national, or
international scale.
Rational Behaviour: making choices to achieve goals in the most effective
way possible
Economists breakdown problems using 4 questions:
1. What are the wants and constraints of those involved?
2. What are the trade-offs?
3. How will others respond?
4. Are resources being allocated in the best way possible?
1.1 Scarcity
Scarcity: the condition of wanting more than you can get with your
available resources.
1.2 Performance and Decision Making
Opportunity Cost: the value of what you have to give up to get something,
the value of your next-best alternative.
Marginal Decision Making: rational people, compare the additional
benefits of a choice against the additional costs, without considering
related benefits and costs of past choices.
Sunk Cost: costs that have already occurred / been spent that you cannot
get back. They should not affect your marginal decision.
1.3 Incentives
Incentive: something that causes people to behave a certain way by
changing the trade-offs they face.
Positive Incentive / Incentive: makes people more likely to do something.
Negative Incentive / Disincentive: makes people less likely to do
something.
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Everything you do gets a response from others. Nothing happens in a
vacuum.
1.4 Efficiency
Efficiency: maximising productivity, + people get what they most want and
need given the available resources. Doesn’t always mean that outcomes
are fair or ethical but it reflects an important idea about economic
outcomes.
Innovation: A idea is news and never heard of
Market Failure: a cause of inefficiency. Example: your business idea won’t
work cause it’s too easy to copy or big companies have gotten to it already.
Intervention: when a powerful force (like the government) intervenes in
the economy, transactions cannot take place the way they normally would.
Unprofitable Idea: the idea won’t make profit.
1.5 Causation and Correlation
Correlation: a consistent relationship between two events or variables.
- If both occur at the same time or move in the same direction they’re
positively correlated.
- If one event or variable increases while the other decrees they’re
negatively correlated.
- If there’s no consistent relationship between the two variables
they’re uncorrelated.
Causation: one event brings out the other.
Correlation without Causation: meaning the correlation is more of a
coincidence not a caution.
Omitted Variables: when two events that are correlated occur together
because both are caused by the same underlying factor, each is related to
the third factor rather than one another. The third factor is the omitted
variable.
Reverse Causation: taking a raincoat in the morning cause it’s going to rain
later. Rain = A, raincoat = B but you do B in anticipation of A.
Downloaded by olinder seth ()
Eco 1104 - Summary Economics - Microeconomics
(University of Ottawa)
Introduction to Microeconomics (University of Ottawa)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university
Downloaded by olinder seth ()
, lOMoARcPSD|59658805
Ch 1: Microeconomics and Life
Economics: the study of how people manage resources.
Microeconomics: the study of how individuals and firms manage resources
Macroeconomics: the study of the economy on a regional, national, or
international scale.
Rational Behaviour: making choices to achieve goals in the most effective
way possible
Economists breakdown problems using 4 questions:
1. What are the wants and constraints of those involved?
2. What are the trade-offs?
3. How will others respond?
4. Are resources being allocated in the best way possible?
1.1 Scarcity
Scarcity: the condition of wanting more than you can get with your
available resources.
1.2 Performance and Decision Making
Opportunity Cost: the value of what you have to give up to get something,
the value of your next-best alternative.
Marginal Decision Making: rational people, compare the additional
benefits of a choice against the additional costs, without considering
related benefits and costs of past choices.
Sunk Cost: costs that have already occurred / been spent that you cannot
get back. They should not affect your marginal decision.
1.3 Incentives
Incentive: something that causes people to behave a certain way by
changing the trade-offs they face.
Positive Incentive / Incentive: makes people more likely to do something.
Negative Incentive / Disincentive: makes people less likely to do
something.
Downloaded by olinder seth ()
, lOMoARcPSD|59658805
Everything you do gets a response from others. Nothing happens in a
vacuum.
1.4 Efficiency
Efficiency: maximising productivity, + people get what they most want and
need given the available resources. Doesn’t always mean that outcomes
are fair or ethical but it reflects an important idea about economic
outcomes.
Innovation: A idea is news and never heard of
Market Failure: a cause of inefficiency. Example: your business idea won’t
work cause it’s too easy to copy or big companies have gotten to it already.
Intervention: when a powerful force (like the government) intervenes in
the economy, transactions cannot take place the way they normally would.
Unprofitable Idea: the idea won’t make profit.
1.5 Causation and Correlation
Correlation: a consistent relationship between two events or variables.
- If both occur at the same time or move in the same direction they’re
positively correlated.
- If one event or variable increases while the other decrees they’re
negatively correlated.
- If there’s no consistent relationship between the two variables
they’re uncorrelated.
Causation: one event brings out the other.
Correlation without Causation: meaning the correlation is more of a
coincidence not a caution.
Omitted Variables: when two events that are correlated occur together
because both are caused by the same underlying factor, each is related to
the third factor rather than one another. The third factor is the omitted
variable.
Reverse Causation: taking a raincoat in the morning cause it’s going to rain
later. Rain = A, raincoat = B but you do B in anticipation of A.
Downloaded by olinder seth ()
