1 Micro? Economics?

What dis?

• Economics … management of scarce resources
• Microeconomics … management of scarce resources of individuals, households, firms

Supply and Demand, Again

• Supply And Demand
• equilibrium = clearing price with respective quantity

Elasticity of Demand

• Price Elasticity
  • elastic: $|E|>1$ … demand does scale
  • 1-elastic: $|E|=1$ … rare
  • inelastic: $|E|<1$ … demand does not scale
• Income Elasticity
  • inferior good $E_I<0$
  • normal good $E_I>0$
• Cross Price Elasticity
  • substitutes: $E_{q1,p2}>0$
  • complements: $E_{q1,p2}<0$

Info

the flatter the demand curve, the more elasticity

Types of Markets

Sellers\Buyers	One	Few	Many
One	Bilateral Monopoly	Limited Monopoly	Monopoly
Few	Limited Monopsony	Bilateral oligopoly	Oligpoloy
Many	Monopsony	Oligopsony	Polypoly

Problem of Monopoly

• where to place your price?
• if price is too high … high elasticity … very low demand
• if price is too low … low elasticity … little profit

Extremes

• completely inelastic
  • crucial drugs/medicine → any price you have to pay
• completely elastic
  • something which was free is now pay → nobody will pay

Short vs Long Term Elasticity

• elasticity of electricity
  • short term → almost impossible to change the consumption habits
  • long term → possible to change e.g. buying more energy efficient washing machine

Glossary

• Complements … when products are bound together
  • when demand for cars decreases, such will the demand for car tires
• Substitutes … when products are interchangeable
  • Apple vs Samsung - can have just one phone
• market clearing price … demand = supply
• labor market … labor suppliers
• Oligopoly … a few companies competing
  • German car brands