Microeconomics > LECTURE NOTES > Chapter 1 - First Principles (All)

Chapter 1 - First Principles

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A Day in the Megacity - Megacities: huge metropolitan complexes that contain tens of millions of people and are spread over immense tracts of land - EX: London + NY + Tokyo - BIGGEST Megacity: Chi... na Pearl River Delta (the PRD) - Home to more than 40 million people - Most people produce goods for world market - Consumers as well as producers - Wage of the avg PRD person is relatively low by US standards - 1980: 800 million Chinese made less than $1.50 per day - Avg Chinese citizens had enough to eat and live in a house… that is it - 1959-1961: Great Leap Backward - Chinese govt got economy so bad where millions of Chinese died from famine The Invisible Hand - Economy: a well functioning system for coordinating productive activities - the activities that create the goods & services people want and get them to the people who want them - To achieve the level of prosperity of America… you need an economy - Economics: the social science that studies the production + distribution + consumption of goods/services - Command economy: decisions about which factories would produce and what goods would be delivered to households were made by govt officials - EX: China before 1980 - consumers were often unable to find necessities in convenience stores (like toilet paper) but a lot of unnecessities - Market economy: production and consumption are the result of decentralized decisions by many firms and individuals - Invisible Hand: refers to the way a market economy manages to harness the power of self-interest for the good of society - The Wealth of Nations by Scottish economist Adam Smith wrote about this concept - individuals pursuing their own interests often end up serving the interests of society as a whole - Microeconomics: study of individuals making decisions and how decisions interact - Key Idea: validity of Adam Smith - individuals pursuing their own interests often do promote society as a whole My Benefit… Your Cost - Market Failure: happens when individual pursuit of own interests, instead of promoting the interests of society as a whole, actually makes society worse off (fact of life) - EX: Traffic congestion - someone driving a car into work in lower Manhattan on a weekday causes more than 3 hours delay to other drivers, and around $160 in monetary loss - EX: Air pollution - overexploitation of natural resources can cause larger issues like climate change or ocean acidification [Show More]

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