Principles of Microeconomics (Video)

What’s the point of education? Do you learn about things, because the learning itself matters, or is education all about the signal you -- and your degree -- send out to the world? Is education really about building skills, or does it serve only to...

In our video on Maximizing Profit Under Monopoly, we cover how firms can use their market power to raise the price of a good well beyond its marginal cost. A practice question from the Microeconomics final exam asked you to find the total profit of a...

Everyday, you make tons of decisions about consumption. Your choices about what and how much of a good to buy are influenced by the laws of supply and demand. These choices are nearly endless. For example, at Starbucks, each drink is highly customizable...

Think through all of the variables that determine the price of a cup of coffee. It might help to imagine the coffee beans on the farm first. Consider the land costs and the price of the farmer’s labor. What about transportation of the beans to the...

Think about what restricts your choices when it comes to buying goods and services. Your income is one variable. Prices are another. What about what you like and don’t like? That’s an important one! Your preferences play a huge role in how you decide to...

We live in a world of scarcity. In other words, what we want outweighs what we can attain. Why? Well, we have limited resources – money, options, time, etc. When you’re making choices about what to buy, your budget, the prices of goods and services, and...

In game theory, the Nash equilibrium is a concept that can help you analyze the behavior and outcomes of two or more people in a non-cooperative situation. The Nash equilibrium means that no person has an incentive to change their behavior or strategy,...

When the price goes up, what happens to the quantity demanded? It goes down. And vice-versa. This is known as the law of demand. Pretty straightforward. What this law doesn’t cover is how much the quantity demanded goes up or down as prices change. This...

To renters, rent control is often seen as a very good thing. But cheap rents can actually cost a lot. Let’s take a look at the consequences of rent control in Mumbai, where many tenants are paying for their flats at 1940s rates. If a landlord receives a...

What is a demand curve? A demand curve illustrates on a graph how much of a particular good or service people are willing to buy as its price changes. When the price for a good or service goes down, demand tends to increase. That’s why stores can look a...

Suppliers of a good change how much they supply as the price changes. And a supply curve shows us how much suppliers are willing to supply at different prices. There’s a supply curve for every good and service out there (just like with the demand curve...

How are prices set in a market? The interactions of buyers (demand) and sellers (supply) determine the price of a good or service.The equilibrium price is the price where the quantity demanded is equal to the quantity supplied. That quantity is known as...

This video looks at both the horizontal and vertical methods for reading the demand curve, how demand curves shift, and consumer surplus.

How do increases or decreases in demand affect the demand curve? An increase in demand means an increase in the quantity demanded at every price. Similarly, a decrease in demand means a decrease in the quantity demanded at every price. This video takes a...

What does the supply curve show us? This video takes a look at what we can tell from the supply curve about the behavior of sellers and quantities supplied at different prices. We’ll talk about producer surplus as well as factors that lead to an increase...

This video explores factors that shift the supply curve. How do technological innovations, input prices, taxes and subsidies, and other factors affect a firm’s costs and the price at which the firm is willing to sell a good? By answering these questions...

In this video, we’ll review equilibrium in the adjustment process, showing that the equilibrium price is the only stable price. Then we’ll take a look at equilibrium quantity, where quantity demanded is equal to quantity supplied, and how this plays out...

Does the equilibrium model work? Nobel Prize winner Vernon Smith conducted experiments testing this model and found that time and time again, the model did indeed work. This video takes a look at Smith’s evidence and analyzes other instances where market...

What is the difference between a change in demand and a change in the quantity demanded? The terminology can be confusing — but we’ll provide some clarity in this video. In short, a change in demand refers to a shift in the demand curve — caused by a...

How much does quantity demanded change when price changes? By a lot or by a little? Elasticity can help us understand this question. This video covers determinants of elasticity such as availability of substitutes, time horizon, classification of goods,...

Elasticity of demand is equal to the percentage change of quantity demanded divided by percentage change in price. In this video, we go over specific terminology and notation, including how to use the midpoint formula. We apply elasticity of demand to...

When is a supply curve considered elastic? What are determinants of elasticity of supply? Let's compare Picasso paintings and toothpicks. Which has an elastic or inelastic supply? For which good could you increase production at a low cost? We also go...

Beginning in 1993, Sudan entered into a civil war, with one of the worst parts being that many people were kidnapped and sold into slavery. Humanitarian groups traveled to Sudan to redeem slaves by buying them out of slavery. Is this good policy? Did it...

In this video, we take a look at real-world applications of elasticity, using the examples of slave redemption in Sudan and and the effects of gun buyback programs in the U.S.

In this video we cover taxes and tax revenue and subsidies on goods. We discuss commodity taxes, including who pays the tax and lost gains from trade, also called deadweight loss. We’ll take a look at the tax wedge and apply what we learn to the example...

Who bears the burden of a tax? Buyers or sellers? Why is it that the more elastic side of the market will pay a smaller share of a tax. Again, we’ll apply what we know to the example of Social Security taxes and also look at the health insurance mandate...

Why do taxes exist? What are the effects of taxes? We discuss how taxes affect consumer surplus and producer surplus and discuss the concept of deadweight loss at length. We’ll also look at a real-world example of deadweight loss: taxing luxury yachts in...

What is a subsidy? A subsidy is really just a negative or reverse tax. Instead of collecting money in the form of a tax, the government gives money to consumer or producers. In this video, we look at the subsidy wedge and who benefits the most from...

What’s the difference between a wage subsidy and a minimum wage? What is the cost of a wage subsidy to taxpayers? We take a look at the earned income tax credit and how it affects low-skilled workers. We also discuss Nobel Prize-winning economist Edmund...

How is it that people in snowy, chilly cities have access to beautiful, fresh roses every February on Valentine’s Day? The answer lies in how the invisible hand helps coordinate economic activity, Using the example of the rose market, this video explains...

Join Professor Tabarrok in exploring the mystery and marvel of prices. We take a look at how oil prices signal the scarcity of oil and the value of its alternative uses. Following up on our previous video, “I, Rose,” we show how the price system allows...

In this video, we discuss how markets link people and places all over the world. We’ll take a look at production and consumption markets and, importantly, the role that prices play in it all. Following up on our example of a rose, we take a look at other...

In this video, we discuss how different markets are linked to one another. How does the price of oil affect the price of candy bars? When the price of oil increases, it is of course more expensive to transport goods, like candy bars. But there are other...

What does an increase in the price of oil tell us? What does it signal? And how do we adjust to that signal? The price of oil gives users of oil an incentive to respond — by using less oil or substituting lower-cost alternatives for oil. The key here is...

Speculation is often considered to be morally dubious. But, can speculation actually be useful to the market process? This video shows that speculation can actually smooth prices over time and increase welfare. Speculators take resources from where they...

We’ve discussed how prices are signals that convey information about goods — but can prices also convey information about events and even predict the future? For instance, can we predict Middle East politics based on the price of oil futures? Or predict...

In 1971, President Nixon, in an effort to control inflation, declared price increases illegal. Because prices couldn’t increase, they began hitting a ceiling. With a price ceiling, buyers are unable to signal their increased demand by bidding prices up,...

Price ceilings result in five major unintended consequences, and in this video we cover two of them. Using the supply and demand curve, we show how price ceilings lead to a shortage of goods and to low quality goods. Prices are signals that indicate to...

In this video, we explore two more unintended consequences of price ceilings: long lines and search costs. What was it like waiting in long lines for gasoline back in the 1970s? Not fun. But why did this happen? When price ceilings were imposed on...

In this video, we explore the fourth unintended consequence of price ceilings: deadweight loss. When prices are controlled, the mutually profitable gains from free trade cannot be fully realized, creating deadweight loss. With price controls, less...

Suppose there is a mild winter on the West Coast and a harsh winter on the East Coast. As a result of the weather, people on the East Coast will demand more home heating oil, bidding up the price. Under the price system, entrepreneurs will be...

Rent controls are a type of price ceiling. We’ll use our diagram to show how rent controls create shortages by reducing the supply of apartments available on the market. Rent controls also result in reduced product quality, since they reduce the returns...

What happens when the prices of all goods are controlled? Under communism, or a command economy, this is exactly what occurs. As a result, all of the effects of price controls become amplified: there are even more shortages or surpluses of goods, lower...

Price floors, when prices are kept artificially high, lead to several consequences that hurt the consumer. In this video, we take a look at the minimum wage as an example of a price floor. Using the supply and demand curve and real world examples, we...

In this video, we cover how price floors lead to wasteful increases in quality and a misallocation of resources. Using the real-world example of airline regulations from 1938-1978, we show how price floors can be used to restrict entry and reduce...

If price controls have negative consequences, why do governments enact them? Let’s revisit our example of President Nixon’s wage and price controls in the 1970s. These price controls were popular, as is demonstrated by Nixon being re-elected after they...

Trade makes people better off, but how? In this video we discuss the importance of specialization and division of knowledge. Specialization leads to improvements in knowledge, which then lead to improvements in productivity. For instance, physicians who...