H A R VA RD U N I V E R S I T Y
Complete Microeconomics 101 Summary
Instruction by Prof. Smith • Comprehensive Full Semester Study Notes
🗺️ CORE CURRICULUM INDEX
Section 1: Foundations of Market Mechanics — Supply & demand, elasticity metrics, and consumer
equilibrium frameworks.
Section 2: Theory of the Firm & Production Cost Structures — Returns to scale, cost curve geometry,
and optimization rules.
Section 3: Market Structures & Perfect vs. Imperfect Competition — Efficiency dynamics, monopoly
pricing, and game theory frameworks.
Section 4: Market Failures & Behavioral Frontiers — Externalities, public goods, asymmetric profiles,
and consumer deviations.
Section 1: Foundations of Market Mechanics
1.1 The Anchor Concept: Rational Choice & Invisible Hand
Core Optimization Principle: Economic agents make decisions at the margin by evaluating whether
the marginal benefit (MB) of an action outweighs its marginal cost (MC). Markets systematically
aggregate these self-interested choices to optimize resource distribution.
Opportunity Cost represents the value of the next best alternative foregone when a choice is finalized. It is
not merely a financial figure; it forms the baseline anchor for calculating true economic profit rather than raw
accounting balance sheets.
1.2 Quantifying Market Sensitivities (Elasticities)
Understanding market response scales requires precise elasticity tracking. A high elasticity index indicates
consumers are deeply reactive to adjustments, while low figures signal rigid purchasing patterns.
Price Elasticity of Demand (\epsilon_d) = rac{\% \Delta Q_d}{\% \Delta P} =
rac{\Delta Q_d}{\Delta P} imes rac{P}{Q}
• \epsilon_d > 1: Elastic (Revenue falls if price increases)
• \epsilon_d < 1: Inelastic (Revenue rises if price increases)
• \epsilon_d = 1: Unit Elastic (Total revenue is maximized)
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Harvard University • Microeconomics 101 • Prof. Smith Page 1 of 4
