Microeconomics is the heart of modern economics. It attempts to explain economic and social outcomes, starting from the decisions of individuals. A key assumption is that individuals optimize ; that is, they do the best they can for themselves, given the environments they face. For households, that means choosing the consumption/savings/work combinations that maximize their utilities, given their time and resource constraints. For firms, it means choosing the input/output combinations that maximize their profits, given technology, input prices, and the demand for their products.
What if consumers decide that their optimal consumption of widgets is 100, while producers decide that their optimal production is 200? A second key assumption is that prices adjust to achieve equilibrium . In this case, the price of widgets would fall, changing the environments, and optimal choices, of both consumers and producers. For consumers, the optimum would rise; for producers, it would fall. Eventually, we'd reach a price at which the optimal consumption of consumers just equaled the optimal production of producers.
This course, then, is devoted to microeconomic analysis and its application. Our purpose is more positive than prescriptive. It's not our job to tell people what they should do to optimize; it's our job to understand why what they do is optimal, given their environments. But there will be normative elements. First, we'll be able to assess the efficiency of various outcomes. Most people would agree that, other things equal, a more efficient outcome is better. Second, we may have social concerns--perhaps the US savings rate, or high school dropouts, or pollution. The first step in fixing a problem is to understand why it happens--why it is the result of individuals optimizing, given their environments. The second step, then, is to devise changes in those environments, that yield better results.
Prerequisite: Econ 100
Grades determined by three in-class exams, a comprehensive final exam, and a short paper assignment. Class participation may also account for a portion of your final grade.