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ECON 2300

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Intermediate Microeconomic Theory I ECON 2300 – Summer 2011 – Mark Melatos Topic 1 – Demand, Supply and Economic Welfare – May 9 What is Micro? - The study of how economic agents behave individually or in groups. - Firms: o How much to produce? At what price? o How will my competitor react? - Consumers: o What, when and how much should I consume? - Governments: o What policies should we implement? Markets - Arise when groups of buyers and sellers interact. o Price, quantity, quality. o Welfare outcomes for firms and consumers. - How do markets work? - What happens if they don’t work? o Market failure (pollution, insurance, GFC). o Is there a role for government? Is Microeconomics Useful? Umm... YES! - It helps us understand many things… - Consumer and firm behaviour o Marketing, finance, corporate finance. - Social policy o Health, taxation, education, environment. - How the Canadian economy works and its role in the world. o Macroeconomics and international trade. - How do people and firms interact day by day? o Contracts and auctions. Studying Microeconomics - Theories and models. - Role of simplifying assumptions. - Testing theories – statistics, data. - Graphs! The Demand and Supply Model - Assumptions o Price-taking (i.e. many firms, consumers). o Homogeneous products. o Full information. o Low transaction costs. - Assume perfect competition. Demand - What determines demand? o Own price of the good. o Price of other goods. o Consumer tastes (advertising?) o Income o Government policy. The Demand Curve - The demand curve: o Shows the quantity demanded at each possible price given tastes, income, other pric
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