Microeconomics sprint
- (getting claude to populate this page retroactively)
175 cards from the Anki deck, in creation order.
2026-05-13
10:05
Scarcity is the observation that (2 lines, line 1)
{{c1::human wants are effectively unlimited}}
10:05
Scarcity is the observation that (2 lines, line 2)
{{c1::while the resources to satisfy them are finite}}
10:06
Scarcity is the observation that (2 lines)
{{c1::[no spoilers]}}
10:12
~Enlightened reframe of scarcity in microeconomics:{{c1::Humans are never satisfied, and have limited resources}}
10:13
First two conclusions from accepting premise of scarcity:
{{c1::Choices must be made
Opportunity cost is real}}
10:14
Second set of two conclusions from accepting premise of scarcity:
{{c1::Trade-offs are unavoidable (sacrifice by definition)
Price/allocation mechanisms for finite goods matter}}
10:14
Re: scarcity, common confusion worth clearing up:
{{c1::Scarcity ≠ shortage}}
10:16
Economists are only focused on {{c1::scarce}} goods, by definition
So, not thinking about things like {{c1::air, awareness}}
10:17
Scarcity is both microeconomics’ {{c1::telos}} and {{c1::an axiom}}
10:20
The opportunity cost of any choice is (definition)
{{c1::the value of the best alternative you gave up to make it}}
10:21
When you spend an evening watching TV,
the opportunity cost isn’t “{{c1::everything else you could have done}}”;
it’s {{c1::whatever you would most have done otherwise — perhaps reading, or working an extra hour.}}
10:23
The reason economists and accountants
can look at the same firm
and reach very different conclusions about whether it’s “profitable”:
{{c1::Accountants only look at explicit costs
Economists look at implicit costs too}}
10:25
In microeconomics, implicit costs =
{{c1::Foregone value from not using a resource in its next-best way}}
10:26
What it might look like to think you’re not incurring a cost:
{{c1::Business owner who pays himself no salary}}
And yet:
{{c1::Still incurs an implicit cost — the salary they could have earned working elsewhere}}
10:28
Conclusion given the premise of opportunity cost, 1:
{{c1::Sunk costs are irrelevant}}
Meaning:{{c1::Money already spent is gone regardless of what you do next — it has no opportunity cost because you can’t recover it.}}
10:31
Conclusion given the premise of opportunity cost, 2:
{{c1::Free things aren’t free}}
10:33
The reason trade is mutually beneficial — between individuals, firms, or countries — is that {{c1::opportunity costs differ}}.
10:33
Textbook example of opportunity costs differening:
{{c1::A brilliant surgeon who also happens to type faster than any secretary, you should still hire a secretary, because your time spent typing forecloses more valuable surgery. }}
10:34
The entire theory of international trade is essentially an elaboration of the point that {{c1::trade is beneficial because opportunity costs differ}}
10:35
The psychological difficulty is that opportunity costs are {{c1::invisible — the road not taken doesn’t send you an invoice}}
10:40
Marginal Revolution’s example re: marginal cost/benefit:
{{c1::Changing volume on TV one click at a time}}
10:45
In microeconomics,
“Marginal” means
{{c1::at the edge - the next unit, the last unit, the small increment}}
10:46
Marginal thinking asks:
“{{c1::is one more of this thing valuable enough to justify its cost?}}”
10:46
The classic illustration of {{c1::marginal thinking}} is the diamond-water paradox
10:49
The resolution of the diamond & water paradox:
{{c1::Price reflects marginal value relative to supply, not total value}}
10:51
What the diamond-and-water paradox reveals, that is very Chapman-esque:
{{c1::Value is not intrinsic,
it’s relational (nebulous)}}
10:53
My canonical example of marginal value:
{{c1::A person in a city 24 hours from dying of thirst and 48 hours walk from a city would pay everything they own for 5L of waterThe same person at home with running taps wouldn’t pay 10p for a glass of waterSame good, radically different marginal value}}
10:56
The fundamental marginal decision rule in economics is:
{{c1::Continue an activity as long as marginal benefit > marginal costStop when they equalise}}
17:04
Economics moved from (early to super modern)
{{c1::prescriptive ethical codes}}
to
{{c1::descriptive models of complex systems}}
17:05
In Ancient Greece,
Hesiod identified the basic economic problem as
{{c1::the pursuit of numerous human desires with limited resources}}
17:06
Re: economics,
Aristotle distinguished between
{{c1::natural and unnatural wealth-getting}}
17:07
Re: economics,
Aristotle distinguished between:
- {{c1::natural transactions}} = {{c1::those intended to satisfy needs}}
- {{c1::Unnatural chrematistics}} = {{c1::exchange for the sake of monetary gain, which Aristotle argued had no limit}}
17:08
Usury means {{c1::lending money with interest}}
17:10
Mercantilism was a (3 words) {{c1::amoral, power-oriented}} view of economics
17:10
Mercantilism assumed that:
{{c1::The total wealth of the world was a zero-sum game}}
17:12
Mercantilist policies focused on:
{{c1::The accumulation of bullion (gold and silver)}}
17:12
Adam Smith published {{c1::The Wealth of Nations}} in {{c1::1776}}
17:13
Wildly considered the birth of modern economics:
{{c1::Adam Smith publishing “The Wealth of Nations”}}
17:14
Adam Smith moved economic analysis away from
{{c1::the monarch’s treasury}}
toward
{{c1::the productivity of the entire laboring population}}
17:14
Adam Smith’s foundational insight was
{{c1::the “invisible hand”}}
17:15
Adam Smith’s foundational insight, in detail (3 lines)
{{c1::The idea that individuals pursuing self-interest
in a competitive market
inadvertently promote the broader social good}}
17:16
Adam Smith identified
{{c1::the division of labor}}
as the primary driver of productivity gains
17:19
Adam Smith famously illustrated that
{{c1::the division of labor
is the primary driver of productivity gains}}
via his
pin factory example
17:19
First chapter of “The Wealth of Nations” is titled
{{c1::On the Division of Labour}}
17:20
“The greatest improvement in the productive powers of labour…
seem to have been the effects of
{{c1::the division of labour}}”
17:23
What was Adam Smith’s raison d’être for writing The Wealth of Nations?
1 — {{c1::Demolish mercantilism — wealth is productive capacity, not stockpiled gold}}
17:23
What was Adam Smith’s raison d’être for writing The Wealth of Nations?
2 — {{c1::Answer a humanitarian puzzle — why do some societies abandon their weakest while others provide for even those who don’t work? His answer: the division of labour, enabled by free markets}}
17:25
Raison d’être means “{{c1::reason for being}}” in French
17:35
Smith argued that
{{c1::ten}} specialized workers
could produce about {{c1::48,000}} pins per day,
compared to fewer than {{c1::20}} per worker if each made pins alone
17:37
Smith attributed the productivity gains from division of labor to three causes:{{c1::Increased dexterity in each worker}}, {{c1::time saved by not switching tasks}},and {{c1::the invention of machinery that specialization encourages}}
18:02
Smith’s theory of value distinguished between
“{{c1::market}} price” ({{c1::affected by temporary fluctuations}})
and
“{{c1::natural}} price” ({{c1::determined by the long-run costs of production}})
18:02
{{c1::David Ricardo}} systematized Adam Smith’s theories
18:03
(Guy after Adam Smith)
{{c1::David Ricardo}}‘s most enduring contribution is the theory of
{{c1::comparative advantage}}
18:04
Comparative advantage demonstrates that
{{c1::International trade is mutually beneficial
Even if one country is more efficient at producing all goods}}
18:16
The core counterintuitive claim of comparative advantage:
{{c1::If country A is better at everything than country BA should still trade, and both countries end up with more stuff than if they’d each gone it alone.}}
18:46
Comparative advantage is the principle that Specialisation is governed by {{c1::relative costs}}, not {{c1::absolute skill}}
18:47
Absolute advantage means {{c1::being able to produce more of a good than another partyusing the same resources}}
18:47
Comparative advantage means {{c1::being able to produce a good at a lower opportunity cost than another party, AKA, less sacrifice}}
18:48
The one with comparative advantage in a good is the one that (2 words) {{c1::sacrifices less}}
18:52
The Marginal Revolution occured in the {{c1::1870}}s
18:53
The Marginal Revolution was a profound shift in economic methodology,
moving away from the Classical focus on {{c1::production costs}}
toward a focus on {{c1::consumer utility}}
18:54
The {{c1::Marginalists}} solved the diamond-water paradox
18:55
Re: diamonds and water
The classical economists were asking the wrong question:
“{{c1::What is the value of water vs. diamonds?}}”
18:56
Re: water-vs-diamonds:
The marginalist move was to reframe the question:
Don’t {{c1::compare water-in-general to diamonds-in-general}}
18:57
Why it counts as model-blindness rather than stupidity
The classical frame treated value as {{c1::an intrinsic property of goods}}, set by {{c1::their cost of production}}.
18:57
Why it counts as model-blindness rather than stupidityMarginalism {{c1::reframes value as a relationship between a good and a person’s existing stock and preferences}}
18:59
How the Marginal Revolution relates to David Chapman’s Meaningness:{{c1::“Value/meaning is a relational, contextual pattern that’s nonetheless real.”
}}
19:01
Marginalists defined value as
{{c1::The satisfaction derived from the last unit consumed}}
Not
{{c1::The total usefulness of a good}}
19:02
Great pithy thing for how Marginalists reject Classical idea:
{{c1::A good is valuable because people want it,
not because it contains labor}}
19:08
(Concise)
Reconciliation of Marginalist and Classical theory:
{{c1::Supply and Demand}}
19:09
In Economics, The Marshallian “scissors” metaphor captures the principle that {{c1::supply and demand must both be analysed together}}because {{c1::focusing on only one is as ineffective as trying to cut with a single blade}}
19:09
The journalist’s claim that “more labour means cheaper labour” is an example of one-bladed scissors analysis;{{c1::invoking the law of supply and demand while only actually considering the supply side}}
19:10
When the supply of labour increases through immigration, a baby boom, or women entering the workforce, the {{c1::demand curve}} does not stay fixed because {{c1::a larger labour force enables more extensive division of labour, which raises the productive powers of labour, which in turn raises the demand for labour}}
19:12
Adam Smith opens The Wealth of Nations by claiming that (3 lines){{c1::the greatest improvement in the productive powers of labourcomes from the division of labour}}
19:14
Who came up with the “two blades of scissors” metaphor
{{c1::Alfred Marshall}}
What he was doing:
{{c1::Reconciling Classical and Marginalist economics}}
19:46
Re: grokking comparative advantage:
The key word doing the work is {{c1::sacrificing}}
19:52
Re: water-vs-diamonds:
The marginalist move was to reframe the question:
Do {{c1::Compare one more glass of water
to one more diamond,
given how much of each you already have}}
19:57
{{c1::David}} Ricardo
21:01
(Detailed)
Reconcilliation of Classical & Marginalist economists:
{{c1::
Supply (the cost of production, Classical)
Demand (utility, Marginal)
to the two blades of a pair of scissors ✂️
arguing that both are necessary to determine price}}
21:55
Years:
Classical economics
From {{c1::1776}} to {{c1::1870}}
21:55
Classical economics, 4.5 key figures:
{{c1::Adam Smith
David Ricardo
Thomas Malthus
John Stuart Mill
“Karl Marx as a heterodox extension”}}
21:56
Classical economists’ central questions were about (3 things)
{{c1::Production, growth, and distribution}}
21:57
Classical economists generally held some version of a {{c1::labour}} theory of value
meaning:
{{c1::the value of a good comes from the labour required to produce it, with adjustments for capital and land}}
21:59
The Marginalists reframed value as determined by
{{c1::the satisfaction of the last unit consumed}}
rather than
{{c1::by the labour put in}}
22:02
The Marginalists presented a
a genuine paradigm shift in framing
value as {{c1::subjective}} and {{c1::relational}}
rather than {{c1::objective}} and {{c1::production-based}}
22:03
Neoclassical economics, roughly year {{c1::1890}} onwards
22:04
What Neoclassical economics was:
(Name) {{c1::Alfred Marshall}}
(Did) {{c1::synthesised the marginalist insight with the classical concern for production costs ✂️}}
22:13
The Great Depression of the 1930s
shattered the Neoclassical belief that
{{c1::markets would always self-correct to full employment}},
22:16
The Wall Street Crash of {{c1::October 1929}} kicked off the Great Depression, which dominated the entire decade
22:21
{{c1::The Great Depression}} is the defining economic event of the 1930s
22:21
The Great Depression scope: {{c1::global in scope rather than purely American.}}
22:22
By 1933, 3 bad things:{{c1::US unemployment in hit roughly 25%Industrial production roughly halvedand global trade collapsed}}
22:23
Classical economics could not explain the {{c1::sustained nature}} of the Great Depression
22:24
The book that founded modern macroeconomics argued that economies can get stuck in equilibria with {{c1::high unemployment}} due to {{c1::insufficient aggregate demand}}
22:25
The book that founded modern macroeconomics was by {{c1::Keynes}} and was published in {{c1::1936}}
22:25
The {{c1::Keynesian}} revolution in macroeconomics is structurally parallel to the {{c1::marginalist}} revolution in microeconomics, in that {{c1::both happened when an existing framework failed to explain phenomena the new framework could account for.}}
22:26
Adolf Hitler became Chancellor of Germany in {{c1::January 1933}}
22:29
The 1930s often reads as a “concept-shaped hole” between the 1920s and 1940s because{{c1::the decade’s story is mostly preconditions for later events so it reads as setup rather than action}}.
23:08
1930s setups for later events:
3:
{{c1::The New Deal → sets up Keynesian regulatory capitalism
Fascism → setups up WWII
Stalin’s purges → sets up the Cold War}}
2026-05-14
09:48
John Maynard Keynes key argument:
{{c1::Aggregate demand is the
primary driver
of economic activity}}
09:49
Keynes’ “failure of aggregate demand”:
{{c1::During a recession,
even if wages fall,
businesses may not hire
if they do not expect people to buy their products}}
09:51
During the Great Recession, Keynes advocated for
{{c1::government intervention through fiscal policy
to fill the demand gap and restore full employment}}
09:52
Two possible government fiscal policy interventions during Great Depression:
{{c1::Increasing spending
Cutting taxes}}
09:52
By the {{c1::1970}}s, the Keynesian consensus was challenged by {{c1::stagflation}}
09:52
Stagflation = {{c1::simultaneous high inflation and high unemployment}}
09:53
The Chicago School was led my {{c1::Milton Friedman}}
09:54
The Chicago School, two key positions:
{{c1::Argued for a return to laissez-faire principles
Emphasized the role of the money supply in determining the price level}}
09:56
Friedman’s Monetarism asserted that
“{{c1::inflation is always and everywhere a monetary phenomenon}},”
caused by
{{c1::an excessive supply of money relative to output}}
09:56
Economics
The late 20th century saw a synthesis where
{{c1::Neoclassical micro-foundations
were integrated into
macroeconomic models}}
09:57
The late 20th century economic models were called
{{c1::“Dynamic Stochastic General Equilibrium” (DSGE)}} models
09:58
The late 20th century economic models
assumed that (2 things):
- {{c1::the economy was populated by rational, forward-looking agents}}
09:58
The late 20th century economic models
became {{c1::the standard tool for central banks}}
09:59
The late 20th century economic models
were criticized after {{c1::the 2008 financial crisis}}
for failing to account for (amongst other things)
{{c1::the possibility of fundamental uncertainty}}
10:00
Economics
The 21st century has seen researchers use
(3 things)
{{c1::Insights from psychology
Large-scale experiments
Computational power}}
10:02
Behavioral economics was pioneered by
{{c1::Daniel Kahneman}} and {{c1::Amos Tversky}}
10:02
The Neoclassical assumption of the “{{c1::Homo Economicus}}”— the perfectly rational agent
10:03
Behavioral economics’ founders’ research identified
{{c1::consistent cognitive biases}}
that lead to
{{c1::“irrational” decision-making}}
10:09
21st century revolution in economics moving it toward a more empirical paradigm:
Use of {{c1::Randomized Controlled Trials (RCTs)}}
To {{c1::test specific anti-poverty interventions}}
10:11
The shift toward randomized controlled trials
in development economics
is mostly a phenomenon of roughly
{{c1::the late 1990s through the 2000s}},
becoming the dominant paradigm through {{c1::the 2010s}}
10:11
The digitization of the economy has provided economists with unprecedented amounts of “{{c1::Big Data}}”
10:12
The failure of {{c1::DSGE}} models to predict the 2008 financial crisis
led to a surge of interest in
{{c1::Agent-Based Modeling (ABM).}}
10:12
In economics, ABM stands for {{c1::Agent-based model}}
10:13
In economics, DSGE stands for
{{c1::Dynamic Stochastic General Equilibrium}}
10:20
Microeconomics focuses on (2 things)
1 - {{c1::the decision-making processes
of individual economic agents}}
10:36
Unlike its counterpart, macroeconomics, which
examines {{c1::aggregate phenomena}}
such as (3 things)
{{c1::national inflation
unemployment
gross domestic product}}
10:37
Microeconomics scrutinises the granular interactions
that determine
{{c1::relative prices}}
and the {{c1::distribution of output}}
10:45
Economics is predicated on {{c1::the fundamental reality of scarcity}}
10:46
The formalisation of Adam Smith’s concepts occurred during the
{{c1::Neoclassical Revolution}},
with {{c1::Alfred Marshall}} serving as a pivotal figure
10:48
The 1890 economic work
established many of the {{c1::graphical and mathematical models}} still utilised by modern economists
10:48
The 1890 economic work
established many of models still utilised by modern economists
including
the {{c1::supply and demand curves}}
10:49
The 1890 economic work also
pioneered the concept of {{c1::price elasticity}},
10:51
The concept of price elasticity
allows for a quantitative measurement of
{{c1::consumer sensitivity to price fluctuations}}
10:52
Re: decision-making
Economic agents do not generally
make {{c1::“all or nothing”}} decisions
instead, they
{{c1::evaluate the marginal benefit of an additional unit of a good against its marginal cost}}
10:53
The central engine of microeconomic theory is {{c1::the model of supply and demand}}
10:54
The primary mechanism for price determination in a market-based economy:
{{c1::Supply and demand}}
10:56
(Detailed)
The key engine model of microeconomic theory
simplifies the complexities of the real world into two opposing forces:
{{c1::the willingness of consumers to purchase goods
and the willingness of producers to offer them}}
10:57
The Law of Demand posits
a {{c1::inverse}} relationship
between
{{c1::the price of a commodity}}
and
{{c1::the quantity demanded}}
10:58
Latin for
“Assuming all other factors remain constant”
{{c1::ceteris paribus}}
11:00
Ceteris comes from Latin ceterus, meaning “{{c1::the other}},” “{{c1::the rest}}
11:00
Ceteris and cetera both have the same root, literally (English) “{{c1::and the rest}}”
11:01
Paribus comes from Latin {{c1::par}}, meaning “{{c1::equal}}”
11:02
Law of Demand:
As the price of a good {{c1::increases}}, the quantity demanded typically {{c1::decreases}}
11:03
The {{c2::Law of Demand}} phenomenon is driven by two distinct mechanisms:
{{c1::the substitution effect
the income effect}}
11:03
Microeconomics:
The substitution effect occurs when
{{c1::consumers switch from a now-more-expensive good
to relatively cheaper alternatives}}
11:05
Microeconomics:
The income effect describes
{{c1::the reduction in a consumer’s overall purchasing power}}
resulting from {{c1::a price increase}},
which generally leads to
{{c1::a decrease in the consumption of most goods}}
11:07
Factors that can shift the entire demand curve include
(3 things)
{{c1::Changes in consumer income
Evolving tastes and preferences
The prices of related goods}}
11:08
A normal good is {{c1::one you buy more of when your income rises}}
11:08
An inferior good is {{c1::one you buy less of when your income rises}}
11:09
Normal good examples:
{{c1::Restaurant meals
Clothes
Travel
Coffee}}
11:10
“Inferior good” name is a bit misleading
{{c1::It doesn’t mean the good is bad quality in some absolute sense
It means it’s the option people use when money is tighter, and they substitute away from it when they can afford to}}
11:10
Classic textbook examples of inferior goods:
{{c1::Instant noodles
Supermarket own-brand basics
Bus travel
Second-hand clothes.}}
11:12
The Law of Supply describes a direct relationship between
{{c1::price and quantity supplied}}
11:12
The Law of Supply:
{{c1::As market prices rise
Firms are incentivised to increase production}}
11:16
Market equilibrium is reached at
{{c1::the price point where
the quantity demanded by consumers
exactly equals the quantity supplied by producers}}
11:16
Market equilibrium is theoretically stable because
{{c1::any deviation creates self-correcting pressures}}
11:17
If the price is set above equilibrium:
{{c1::a surplus (excess supply) emerges
prompting sellers to lower prices to clear inventory}}
11:17
If the price is below equilibrium
{{c1::a shortage (excess demand) occurs,
and the resulting competition among buyers drives prices back up}}
11:18
Elasticity provides a quantitative measure of
{{c1::how responsive one variable is to changes in another}}
11:19
Elasticity allows economists to predict
{{c1::the impact of price changes on consumption patterns}}
11:19
Elasticity allows business managers to predict
{{c1::the impact of price changes on total revenue}}
11:21
The most common application of elasticity is the
{{c1::price elasticity of demand}}
11:21
The price elasticity of demand
is calculated as
{{c1::the percentage change in quantity demanded
divided by the percentage change in price}}
11:22
In economics, PED stands for {{c1::price elasticity of demand}}
11:23
If demand is considered elastic, then
{{c1::consumers are highly sensitive to price changes.}}
11:23
If demand is considered inelastic, then
{{c1::consumers are not highly sensitive to price changes.}}
11:24
Inelastic Demand is common for
{{c1::necessities with few substitutes}}
such as
{{c1::life-saving medications or gasoline}}
11:24
With Inelastic Demand,
Even {{c1::significant price increases}}
Do not {{c1::lead to large decreases in quantity demanded}}
11:25
Elastic Demand:
Typical for
{{c1::luxury goods}}
or products with
{{c1::many close substitutes}}
11:25
Elastic Demand, summarised:
{{c1::A small price increase
may cause consumers to switch brands
or forego the purchase entirely}}
11:28
Re: boosting revenue depending on elasticity type:
Inelastic product → {{c1::raise prices, people buy regardless}}
11:28
Re: boosting revenue depending on elasticity type:
Elastic product → {{c1::lower prices, boost quantity sold}}
12:11
Re: the Great Depression, the classical claim went roughly like this:
If mass unemployment,
that means that the {{c1::supply of labour}} exceeds {{c1::demand at the current wage}}
12:12
Re: the Great Depression, the classical claim went roughly like this:
If mass unemployment,
…
therefore (3 lines)
{{c1::excess supply pushes the price down
so wages should fall
making hiring workers cheaper}}
12:23
The discipline of microeconomics focuses on (2 things)
2 - the {{c1::subsequent allocation of scarce resources within specific market environments}}
12:29
Supply and demand curves are used to
{{c1::identify market equilibrium}}