Microeconomics Lecture 1: Basic Principles

A set of 15 practice questions based on the introductory lecture for Microeconomics, covering foundational principles such as opportunity cost, marginal analysis, incentives, and market equilibrium.

How does the transcript define microeconomics?

Microeconomics is the study of how people and firms make decisions, and how those decisions interact.

What are three examples of microeconomic topics provided in the lecture?

The effect of a minimum wage policy on unemployment, the design of organ donation policies, and why people give to charity.

What is the core implication of Principle 1: Scarcity necessitates choice?

Because resources are scarce (such as time, food, water, and fuel), we cannot use them for everything we want and are forced to choose how we allocate them.

According to Principle 2, what is the definition of opportunity cost?

Opportunity cost is the cost of your next best alternative, or what you give up in order to get something.

In the example of Jack choosing between overtime and a movie, what is his total opportunity cost of going to see the movie?

$30$ (forgone pay) + $10$ (cost of ticket) = $40$.

In the movie theater example, why is the parking fee excluded from the opportunity cost calculation?

Because Jack expects to spend the same amount of money ($5$) in parking regardless of whether he stays at work or goes to the movie theater.

What does Principle 3 mean when it states that 'How Much?' decisions are made at the margin?

It means that decisions are made $1$ unit at a time, such as deciding whether to hit snooze for $5$ more minutes or eat one more cookie.

In the furniture refurbishing exercise, why should you refurbish the second piece of furniture?

Because the marginal gain from the second day ($40$) is greater than the opportunity cost of mowing lawns for the day ($25$).

Based on the furniture refurbishing example, what is the optimal number of days to spend refurbishing?

You should work $3$ days because the marginal gain for the fourth day ($10$) is less than the opportunity cost ($25$).

What is the core concept of Principle 4 regarding human behavior?

People usually respond to incentives.

What undesirable outcome occurred when the 19th-century Hanoi government offered a bounty on rats?

The rat population actually increased because people began farming rats to increase their payouts from the bounty.

What is the benefit of specialization and trade according to Principle 5?

When individuals specialize in tasks they are good at and trade, they can get more of what they want than if everyone attempted to be self-sufficient.

How is 'equilibrium' defined in the context of this microeconomics class?

Equilibrium is a situation in which no one individual can be better off changing their behavior or choices, given the behavior and choices of others in the situation.

According to Principle 6, why do markets move toward equilibrium?

Because individuals exploit incentives for their own well-being.

What real-world example is used to explain how traffic moves towards equilibrium across different routes?

The Waze app, which equalizes traffic by allowing individuals to exploit faster routes until no one can be better off by switching.