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1 Optimization and Allo cation

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14.01 Principles of Microeconomics, Fall 2007

Chia-Hui Chen

September 5, 2007


Lecture 1

Overview: Themes, Typ es of Markets, EconomicMeasurement, Economic Analysis

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

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

1Optimization and Allo cation

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

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Definition and Various Typ e of MarketsMarket. A place where buyers and sellers come together to exchange some
product or good.

Product and Factor Markets
Market
Product Market
Factor Market

Buyers
individuals
firmsSellers
firms
individuals

Table 1: Product and Factor Markets.

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3 Economic Measurement

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

Types of Markets Based on Influence on Price
Market Type

Competitive

Monopolistic

Oligopoly

MonopolyMonopsony
Oligopsony

Products
homogeneous
heterogeneous

Sellers
many
many
a few
one
many
many

Buyers
many
many
many
many
one

a few


Table 2: Types of Markets Based onInfluence on Price.

Table 2 shows different markets based on product differentiation and influ­
ence on price. Influence on price increases in moving from Competitive markets
to Monopoly.

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