Economics I - Microeconomics: Lecture 1 - Hockey Stick

Introductory microeconomics flashcards covering the 'Hockey Stick' growth, Malthusian Law, Adam Smith's theories, economic modeling, scarcity, and Pareto efficiency.

What is the etymological origin and meaning of 'microeconomics'?

It comes from the Greek word 'mikrós', which means 'small'. It deals with the behavior of small, single, or individual economic actors such as consumers, employers, employees, investors, or businesses.

How does the OECD formally define Gross Domestic Product (GDP)?

The aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).

What was Thomas Malthus's central argument in 'An Essay on the Principle of Population' ($1798$)?

He argued that because of Earth's limited resources, population growth and sustainable improvement of living conditions would not be feasible at the same time, leading to 'Zero Growth'.

According to Adam Smith in 'The Wealth of Nations' ($1776$), how does an individual promote the public interest?

By pursuing his own gain, an individual is led by an 'invisible hand' to promote the interest of society more effectually than when he actually intends to promote it.

What three circumstances did Adam Smith attribute to the increase in work quantity resulting from the division of labor?

1. Increase of dexterity in every particular workman; 2. Saving of the time commonly lost in passing from one species of work to another; 3. The invention of machines which facilitate and abridge labor.

What is the approximate time period of the Industrial Revolution mentioned in the lecture?

ca. $1760 - 1840$.

How is technological progress illustrated using computer storage examples from $1956$ to the present?

The $1956$ IBM Model 350 had a capacity of $5\,MB$, while a current Micro SD Card has a capacity of $128,000\,MB$.

What are the four characteristics of a 'good' economic model?

It is clear (helps understanding), it predicts accurately (consistent with evidence), it improves communication (helps identify agreement/disagreement), and it is useful (helps improve how the economy works).

How did Lionel Robbins ($1932$) define Economics?

"Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."

What is the general mathematical form for constraint optimization in economics?

$\max_{x,y} f(x, y)$ subject to $g(x, y) \leq d$.

Distinguish between the Allocation Problem and the Distribution Problem in the context of scarcity.

The Allocation Problem focuses on how resources can be allocated efficiently (inter-personal competition), while the Distribution Problem focuses on how resources can be allocated fairly.

What is a Pareto Improvement?

A reallocation where, compared to allocation A, allocation B improves the utility of some individuals without hurting the utility of others.

What is the definition of a Pareto Efficient (or Pareto Optimal) allocation?

An allocation where no Pareto Improvement is possible; reallocations which make any individual better off without making at least one individual worse off are not possible.

In the 'white sausage' allocation example between Albert and Brenda, why is the allocation ($6, 0$) not Pareto-efficient?

Because the allocation ($5, 1$) would be a Pareto Improvement (it makes Brenda better off without making Albert worse off, as Albert's utility remains $5$ at both $5$ and $6$ sausages).

What are the two books by Adam Smith cited as the origins of economics?

'The Theory of Moral Sentiments' ($1759$) and 'The Wealth of Nations' ($1776$).