ECONOMICS I.

MICROECONOMICS
Budapest University of Technology and Economics
Department of Economics
Lszl Szalai
 GENERAL INFO
Lectures (course code: BMEGT301004)
Thursdays 1015 1145 (KF392)
Lecturer
Lszl Szalai, assistant lecturer, Dept. of Economics
szalai@kgt.bme.hu
Consulting hours: Thursdays 1415 1545
Please register here: http://www.freecandy.eu/en/contact/
Office: Building Q, Wing A, II. floor, 217.
Addr.: H-1117 Budapest, Magyar tudsok krtja 2.
 GENERAL INFO
Literature
Textbook: Hal R. Varian Intermediate Microeconomics
Recommended
Paul Samuelson Microeconomics
Gregory Mankiw Principles of Microeconomics
Download slides from: http://www.freecandy.eu/en/
Objectives
Understanding the key concepts of economics
Getting familiar with a basic set of analysis tools
Building simple models for practical problems
 REQUIREMENTS
First midterm exam
23rd of March, Thursday 10:15 (7th week), K392
Exam concerns: Weeks 16
Time available: 45 minutes, Pass rate: 50%
Second midterm exam
11th of May, Thursday 10:15 (14th week), K392
Exam concerns: Weeks 813
Final grade
Pass both midterms
Grade will be obtained according to the average results
 INTRODUCTION
Mainstream microeconomics is a science of
rationality, incentives, decision-making,
and human behaviour in general...
Not just in terms of business, but in everyday-situations
Example: Why are only the same top hit songs played in most
commercial radios? The Hotelling-model
Models are stories made precise
Understanding incentives and economic constraints
could boost your career or maybe your own start-up
 GARY BECKER (19302014)
Nobel Price in 1993
...extended the domain of
microeconomic analysis to a
wide range of human behavior...
Economics is...
an approach, a method of
analysis rather than
the subject itself
Nobel lecture: The economic
way of looking at behavior
 MICROECONOMICS
Free goods like sunlight and air...
Human
needs
Economic goods Scarcity
(and services)

Consumption
Decision
Rationality
Production (assumption)

Opportunity cost
 WHAT IS ECONOMICS ABOUT?
Solving three basic problems
What goods and services to produce?
How to produce them?
For whom to produce them?
Methods
Command economy
Market economy
The invisible hand Price mechanism
Mixed economy
Government sector taxes, public goods, income redistribution
 COURSE OUTLINE
Introduction
The Science of Microeconomics
Demand, supply, and market equilibrium
Consumer behavior
Preferences & Utility
Budget constraint & Optimal choice
Individual demand & Consumer surplus
The Market
Market demand & Equilibrium
Taxes & Price regulation
 COURSE OUTLINE
Production theory
Production function
Maximizing the profits
Costs & Cost curves
Market structures
Perfect competition
Monopoly
Oligopolies
Externalities & Public goods
WHAT DRIVES THE MARKET DEMAND?
Preferences somewhat like tastes
Income
Price Demand function (negative slope)
Substitute goods
Supplementary goods
Number of consumers
Expectations
Governmental interventions
WHAT DRIVES THE MARKET SUPPLY?
Technology (the production function)
Factors of production
Costs of production
Output price Supply function (positive slope)
Number of suppliers
Market structure
Expectations
Governmental interventions
 THE PRICE MECHANISM
p
S
excess supply

Cobweb-model

excess demand

D
Q
 THE MARSHALL-CROSS
p
S

consumer
surplus
p*
producer
surplus

D
Q
Q*
 TRANSFORMATIONS
p
S

Increasing income
Higher price of the substitute
Lower price of the supplementary

Decreasing income

D
Q
 TRANSFORMATIONS
p
Higher factor prices S
Regulatory policies

Technological advance
Lower factor prices

D
Q