MIT PoM 1: introduction to Microeconomics

  • Economics is all about scarcity and the constrained optimization, which means given certain constraints, how does individuals and firm trade off different alternatives to make the optimal choice. Actually, all engineering is about constraint optimization.
  • This course is going to be focusing on two types of actors, consumers and producers. And we are about to build models to explain the behavior of these actions. The models needs to be tractable and can explain the real world in reality.
  • Consumer are to optimize the utility, firms on the other hand, are going to optimize the profits.
  • Three are fundamental questions in microeconomics: what goods and services should be produced? How these goods and services are produced? Who should get these goods and services? Price will determine what get produced, how it’s produced, and who gets the goods that are produced. 
  • The first distinction: theoretical v.s. empirical economics. Theoretical economics is the process that build the models to explain the world, while empirical economics is the process of testing these models to see how good they could explain the world. 
  • Another distinction: positive v.s. normative economics. The way things are: positive economics, and things should be: normative economics. 
  • Supply + demand: water is important but has a large supply, diamond is not relevant to the life, but has a much lower supply, thus a much lower price.
  • Consumer theory: preference, constraints. 

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