NOTES FOR MICROECONOMICS by Prof. Nicholas Economides
Stern School of Business
Fall 2011

Copyright  Nicholas Economides

MICROECONOMICS is about
1. Buying decisions of the individual
2. Buying and selling decisions of the firm
3. The determination of prices and in markets
4. The quantity, quality and variety of products
5. Profits
6. Consumers’ satisfaction

There are two sides in a market for a good
DEMAND

SUPPLY

Created by Consumers

Created by firms

Each consumer maximizes

Each firm maximizes its

satisfaction (“utility”)

profits

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 CONSUMPTION THEORY

 PRODUCTION THEORY
1

We will first study consumption and later production. In the third part of the course we will take the “demand” schedule from the consumption analysis and the “supply” schedule from the production analysis and put them together in a market. The price, and the quantity exchanged will be determined in the market. We will also discuss the performance and efficiency of markets.

A.

CONSUMPTION ANALYSIS UNDER CERTAINTY

1. Goods are products or services that consumers or businesses desire.
Examples: a book, a telephone call, insurance coverage. Goods may be directly desired by consumers or may contribute to the production of other goods that are desired by consumers. For example a machine used in the production of cars is desirable because it is useful in the production of cars, although it has no direct value to a consumer. Bads are products or services that consumers desire less of. Examples: garbage, pollution, some telephone calls.
Clearly, a good for one consumer could be a bad for another.
2. If possible, each consumer would consume a very large (infinite) amount of each good. But, each individual is constrained by his/her ability to pay for these goods. The