Microeconomics Lecture Outline

1. Partial equilibrium analysis

2. Consumer: utility maximizer
   • Utility function: U(Q_i) (Fig. 2-1a)
   • Diminishing marginal utility: MU(Q_i)=U'(Q_i)
   • Individual demand schedule: Q_i(p)
   • Market demand: Q(p)=Q₁(p)+Q₂(p)+...+Q_n(p), p=MU₁(Q₁)=MU₂(Q₂)=...=MU_n(Q_n) (Fig. 2-1b)
   • Price/income elasticity of demand D(p,I)

3. Producer: profit maximizer
   • Increasing marginal cost: MC(Q_j)
   • Individual supply curve: Q_j(p) (Fig. 2-2a)
   • Market supply: Q(p)=Q₁(p)+Q₂(p)+...+Q_k(p), p=MC₁(Q₁)+MC₂(Q₂)+...+MC_k(Q_k) (Fig. 2-2b)
   • Price elasticity of supply S(p)

4. Market equilibrium: (p*, Q*)
   • Excess demand: when p < p* (Fig. 2-3a)
   • Excess supply: when p > p* (Fig. 2-3b)
   • Market-clearing price (thru adjustment process): p = p*
   • Efficiency: MU_i (all consumers) = P = MC_j (all producers)

5. Applications:
   • Supply shock: oil price hike (supply shifts up) (Fig. 2-4a)
   • Demand shock: taste change (demand shifts right) (Fig. 2-4b)
   • Housing market: demand-side v. supply-side policies
   • Berkeley rent control: fixed house supply, rent ceiling, excess demand
   • Financial market (lender, borrower, interest rate)

6. Welfare analysis:
   • Consumer surplus, producer surplus, social surplus (Fig. 2-5a)
   • Tax and subsidy: excess burden (EB), deadweight loss (DWL), tax base broadening (Fig. 2-5b)

7. Price as an efficient resource allocation mechanism:
   • Ticket scalpers v. auction
   • Prostitution and adultery