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1 Optimization and Allocation


14.01 Principles of Microeconomics, Fall 2007
Chia-Hui Chen
September 5, 2007

Lecture 1

Overview: Themes, Types of Markets, Economic
Measurement,Economic Analysis

Microeconomics is a branch of economics that studies how individuals and firms make decisions to allocate limited resources, typically in markets where goods or services are beingbought and sold.

1. Chap 1: Optimization and Allocation 2. Chap 1: Definition and Various Type of Markets 3. Chap 1: Economic Measurement 4. Chap 1: Economic Analysis


Optimizationand Allocation

Consumer theory. Maximize preference (with limited income or time) Producer theory. Maximize profit (with limited capital)


Definition and Various Type of Markets

Market. Aplace where buyers and sellers come together to exchange some product or good.

Product and Factor Markets
Market Product Market Factor Market Buyers individuals firms Sellers firms individuals

Table1: Product and Factor Markets.

Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (, Massachusetts Institute ofTechnology. Downloaded on [DD Month YYYY].

3 Economic Measurement


In a factor market, buyers are firms who need to hire workers and borrow money for capital expenditure, and sellers areindividuals who provide labor and save money in banks.

Types of Markets Based on Influence on Price
Market Type
Monopsony Oligopsony Productshomogeneous heterogeneous Sellers many many a few one many many Buyers many many many many one
a few

Table 2: Types of Markets Based on Influence on Price.
Table 2 shows different markets based onproduct differentiation and influ­ ence on price. Influence on price increases in moving from Competitive markets to Monopoly.


Economic Measurement

Flow and Stock Variables
Stock variables. Not...
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