Learning / Microeconomics refresher

  Learning

I want to learn about a lot of things :

Child rearing things.
green and sustainability things.
Financial markets knowledge that I can apply to buying a home or a car. understanding how to behave in an inflation.
Also my current career related strengthening. courses to finish : spark, snowflake, data science. PM.

I also wanted to brush my mind on a course I took on microeconomics (Duke University ) which came to my mind when I read the Raghuram Rajan article commenting on the US economy: 

Some things from the article:

- US gov is giving stimulus and support to industries and justifying it with the pandemic. The assumptions that go behind it is that it will keep spending going and therefore maintain the economy and if it gets too much, they can tax the rich and as long as interest rate is low, they will be fine. The author argues that this spending could be more targeted and should not have been a blanket approach. The consequence of this blanket approach would be that the middle class will be bailing out bigger industries, that companies that would have sustained did not need it, and that the rich will find ways to not pay tax. He also says tax money should be spent on infrastructure, broadband, charging station and such, which when invested on will bring in more money later and this kind of expenditure is going to affect what can be done in other areas. Inflation is not the only risk in US, he finishes.

This prompted me to go back to the course where I've forgotten much of the content to find a graph.

I've not found it yet but here are some terms I'm trying to brush up now:

 - Production Possibilities Frontier

- Opportunity cost

- Scarcity

- Allocative efficiency

- Comparative advantage / absolute advantage( specialization)

- Supply curve

- Demand curve

- Equilibrium

- Invisible hand

- Elasticity

- Surplus

- T.S (total surplus)

- Government intervention 

- Tax (during demand elasticity and supply elasticity )

- Subsidy

Opp cost: 

A Hilton hotel in Hong Kong was making more revenue than expenditure and yet decided to knock off the building because the owner realized building a bigger building there with office spaces would bring in much more money. Opp cost = what are you losing while you are focused on gaining something.

Scarcity:

Maybe land, water, money, time

Or we want more than what I have : more shoes, more charity. This developed trade and market

marginal cost and marginal benefit

how much benefit or cost do we get by buying one more unit of something. 

usually the benefit decreases with every additional unit.

Allocative efficiency :

marginal benefit = marginal cost

if you have to spend more of something to get a lesser than preferred amount of a benefit, then it is not allocative efficient. Right now, maybe the price of used car. We want the safety of a better car but not at the high prices it is offered at.

Production possibility frontier 

Say I want to buy a car and a home. And I only have 50K. The production possibility frontier is this limit of 50K. If I put 5K on the car , I have 45K on the house. If I want a better car, the only way to do it is by trading off the down payment towards my home. The choice can be somewhere on the graph or somewhere within the graph (5K + 15K) but never over what you can afford > 50k

There can be a market change or increase in production where now suddenly cars are much cheaper. so with the same money I can buy a better car or maybe 2 cars. This is called economic growth, where you have the same amount of money, but the PPF shifts out so you can buy more.

Could be some technological improvement.

Comparative advantage:

If I can cook food in 1 hour and AJ can do the same in 3 hours. 

If AJ has more earning capacity than me in a job than I do. 

And we have limited time to cook and spend at a job, who should be spending more time at cooking and who at the job? 

Not a feminist example, but the answer is when we decide to work together, we bring each other a comparative advantage in one of these places and can go past our PPF by trading what we usually did by ourself.

Trade 

consumption possibility frontier.

Absolute advantage : 

Demand curve: Price decrease , quantity increases

So the demand for used cars is high,  but the price is also high.

The quantity demanded 

Things that can shift demand : Income , price of substitutes(electric car vs gas cars), price of complements (gas and car), characters of the car, expectation of future price.

Sometimes if income increases , demand for inferior goods will go down.

Supply curve:

More farmers will be willing to sell eggs if the price of egg goes high.

equilibrium:

 Quantity supplied = Quantity demanded

A used car at 15K was at equilibrium

Same car at 20K is out of equilibrium.

invisible hand:

when prices are set too high, lesser people buy, and the invisible hand puts pressure to decrease price.

Some sellers may stop selling or turn eggs into mayonnaise. and more buyers will be willing to buy at the lesser price from remaining sellers.

when prices decrease on the other hand, people want to buy more, and demand may not be able to meet it, so they will increase price, some buyers drop out, and quantity increases and the invisible hand brings things back to equilibrium.

demand / supply  shifts

when income increases, equilibrium shifts after a point.

excess supply

when both demand and supply changes.

after pandemic more people want new or used cards. demand has increased

the number of cars have been less because of chip shortage. supply has decreased.

gets tricky.

elasticity = responsiveness to price change

 if i have 10 mangoes that I grew at $10 per piece and no one is buying it at 20$, and now the price pressure has brought it to $15, I will be able to sell the mangoes, but my profit per mango will be low.

Elasticity is how much a price change affects how many units get sold. 

= change in quantity / change in price

chemotherapy drug - low elasticity. people will buy even when price goes high.

Elasticity changes at the price level.

I will be willing to sell more mangoes if my price drop is only a few dollars, but if the price drop is closer to no profit (or a loss) I will eat my own mangoes. :D I will be inelastic.

Government taxes and subsidies:

- government comes between the buyer and seller and increases the price even further

- subsidize vaccinations.

- 

What I learnt from this course:

- better to wait for equilibrium when price has been increasing high

- better to buy when price is low

- trade, partnership, competitive advantage, specialization improves yield.

- when governments take good decisions , they don't make tax pay for their mistakes, and whatever tax pays for , pays itself back.

Financial Markets ( Yale University )