can-celebi.github.io/micro-business/L01
microeconomics · lecture 1 · open on your laptop
microeconomics
040184 · ws 2026/27 · lecture 1
can çelebi · university of vienna
who am i
undergrad
Middlebury College
master
University of Nottingham
phd
University of Mannheim · Yale
research
Max Planck Institute for Intelligent Systems
now
University of Vienna
teaching
micro · Middlebury · Mannheim · Yale · Vienna
my research
crypto
NFT investors · memecoin investors
ai
LLMs · chatbots · human–AI teams
methods
text as data · LLM tools for experiments
behavioral
political economy · strategic behaviour
the week
mon 12:00problem set due
wed 16:45tutorialwith Mari Edilian
wed 18:30lecture
thu 18:30lecture
problem sets
moodlepdf
→
groups oksolve
→
moodle · on your ownquiz
→
automaticgraded
→
wed 16:45tutorial
grading
problem sets15%
midterm40%
final45%
to pass, both conditions must hold:
1
total ≥ 50%
2
(midterm + final) / 2 ≥ 50%
pass or fail?
| # | ps | midterm | final | total | exam avg | ? |
|---|---|---|---|---|---|---|
| A | 100 | 100 | 0 | 55.0 | 50.0 | pass |
| B | 100 | 10 | 90 | 59.5 | 50.0 | pass |
| C | 100 | 60 | 40 | 57.0 | 50.0 | pass |
| D | 0 | 60 | 40 | 42.0 | 50.0 | fail |
| E | 100 | 50 | 45 | 55.3 | 47.5 | fail |
dates
problem set 1
mon 12.10 · 12:00
deregistration
until wed 14.10
midterm
thu 19.11 · 18:30 · hs 6 / 14 / 1
final
thu 28.01 · 18:30 · hs 6 / 14 / 4 / 15 / 16
aids
none
retake
when
february · tbd
format
harder · open questions
who
≥ 1 exam taken + problem sets handed in
where & how
slides
can-celebi.github.io/micro-business · link also on moodle
problem sets
moodle
book
Frank · Microeconomics and Behavior · optional
communication
announcements
moodle · announcements
questions
moodle · forum
after class
ask me
e-mail
personal matters only · answered on weekends
office hours
by appointment · e-mail
math
1
derivatives · partial derivatives
2
constrained optimization
3
inverse functions
moodle
"Math recap" · all the math you need and how we use it · section Introduction
study tips
you know what works for you.
ai
you can use LLMs.
the course · part 1
the benchmark: competitive markets
consumer theory→ demand
producer theory→ supply
→
demand + supplyequilibrium
the course · part 2
when markets are not like that
one seller
monopoly · TSMC
few sellers
oligopoly · memory chips
side effects
externalities · electricity · water · CO₂ of AI
if time
public goods · climate · Linux
what you'll learn
1
the basic language of economics
2
simple models of behaviour · consumers · firms · markets
tell me about yourself
can-celebi.github.io/micro-business/S01
anonymous · about 1 minute
back to the slides
can-celebi.github.io/micro-business/L01
about you
who you are
today
1 scarcity
2 cost–benefit
3 reservation price
4 explicit vs implicit cost
5 opportunity cost
6 opportunity cost of money
7 sunk cost
8 marginal vs average
9 marginal benefit ≥ marginal cost
10 positive vs normative
whatever we don't cover today, we continue next class before moving on
scarcity
more demand than is available
A resource is scarce if people want more of it than there is.
how to tell if it's scarce
imagine it were free: would there be enough for everyone?
air
free, enough for everyone → not scarce
gpus
if free, far from enough for everyone → scarce
scarcity
the ai boom
needs GPUs, electricity, water for cooling and memory chips
all of them
are limited: firms want more than exists
which is the scarcest?
show answer
no single right answer
All four are scarce: at a price of zero, AI firms would want far more than exists.
Scarcity means choosing: a GPU used here cannot be used there.
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of economic scarcity from my own life, using the basic concept of economic scarcity from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear what scarce resource I face, what choice I make, and what alternative use of that resource I have to give up. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
cost–benefit
do it ⟺ benefit > cost
Take an action if and only if its extra benefit is at least as large as its extra cost.
you
ChatGPT Plus at €20 / month?
research
10,000 texts: human coders or an LLM?
firm
a chatbot for customer service?
lab
buy GPUs or rent them in the cloud?
cost–benefit
ChatGPT Plus
costs €20 per month
you get
better models, faster answers, more messages
would you subscribe?
show answer
no right answer, it is about you
yes → for you, the benefit is more than €20 a month
no → the benefit is less than €20
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of the cost–benefit principle from my own life, using the basic concept of the cost–benefit principle from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear a decision I face, its benefit and its cost to me (in euros or hours), and whether I should do it. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
reservation price
the highest price you'd pay
The highest price at which you would still buy: at that price, buying and not buying are equally good.
ai
the most you'd pay per month for an AI subscription
concert
the most you'd pay for a ticket
reservation price
early 2023
ChatGPT was free · OpenAI asked users: at what price would it be too expensive for you?
they wanted
people's reservation prices, to pick the subscription price
weeks later
ChatGPT Plus launched at $20 a month
your reservation price?
show answer
no right answer, it is your number
At your reservation price you are indifferent: buy or not, equally good.
Everyone with €20 or more should have said "yes" on the previous slide.
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of a reservation price from my own life, using the basic concept of a reservation price from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear something I would buy, the highest price I would pay for it, and what happens if the price is above that. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
explicit vs implicit cost
explicit
money leaves your pocket · a payment, a bill
implicit
no money changes hands, but you give up something valuable · your time, your effort, what your own resources could earn
economic cost
explicit + implicit
explicit vs implicit cost
Mia quits her €70,000 job at Google to run her own LLM start-up for a year · revenue €80,000
explicit · she pays
cloud GPUs €30,000
office €12,000
implicit · she gives up
Google salary €70,000
accounting profit
80,000 − 42,000 = €38,000 · revenue − explicit
economic profit
80,000 − 112,000 = −€32,000 · revenue − explicit − implicit
explicit vs implicit cost
this weekend
you visit a friend in Prague
you pay
train ticket €40 · food and drinks €60
you give up
your Saturday café shift, which pays €100 (you neither like nor dislike the job)
accounting cost?
show answer
€100
Accounting cost counts only what you pay in money (explicit costs).
train €40 + food and drinks €60 = €100
explicit vs implicit cost
this weekend
you visit a friend in Prague
you pay
train ticket €40 · food and drinks €60
you give up
your Saturday café shift, which pays €100 (you neither like nor dislike the job)
economic cost?
show answer
€200
Economic cost adds what you give up: the €100 café shift (implicit cost).
explicit €100 + implicit €100 = €200
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of explicit versus implicit costs from my own life, using the basic concept of explicit versus implicit costs from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear a choice I make, the explicit costs I pay with money, and the implicit costs I bear without paying money. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
opportunity cost
the best alternative you give up
The value of the best alternative you give up when you choose.
tsmc's chip factory
makes Nvidia AI chips or iPhone chips
openai's gpus
train the next model or answer your ChatGPT questions
your €20
ChatGPT Plus or dinner with friends
your evening
problem set or side job
a city plot
a data centre or housing or green space
opportunity cost
you won
a 1-year ChatGPT Plus gift code in a raffle (it normally costs €240)
a classmate
offers you €150 for the code
to you
a year of Plus is worth about €100 (you'd only use it a little)
use the code or sell it?
show answer
sell it
The code was free, but using it means giving up the €150 your classmate would pay. That €150 is its opportunity cost.
It is worth only €100 to you, so selling leaves you €50 better off.
Not €0 ("it was free") and not €240 (the list price).
value if you use it €100 value if you sell it €150 → sell
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of opportunity cost from my own life, using the basic concept of opportunity cost from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear a choice I make, the best alternative I give up, and what that alternative is worth to me. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
opportunity cost of money
idle money still costs you
Money used one way gives up the interest it could earn in a savings account.
you have
€1,000 in savings
a savings account
pays 3% a year → €30
you keep it instead
in your current account at 0%
cost to you
€30 a year · although nobody charged you anything
why?
you don't pay €30, you just don't get it · an implicit cost
same when you
lend money to a friend for free · pay a year in advance · keep cash at home
opportunity cost of money
your friend
wants to borrow €1,000 for a new laptop, for one year
interest-free
you're sure they'll pay you back
your savings account
pays 5% a year
what does the loan cost you?
show answer
€50
You give up the interest your savings would have earned.
5% × €1,000 = €50
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of the opportunity cost of money from my own life, using the basic concept of the opportunity cost of money from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear money I hold, lend or spend, and the interest or return I give up per year by doing so (with a rough number). Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
sunk cost
already paid, can't get back → ignore it
Money already spent that you can't get back: it's gone either way, so ignore it when you decide.
concert
a ticket you can't refund or resell
swimming pools
a 6-month membership for Vienna's pools · non-refundable
sunk cost
last month
you bought an iPhone for €1,000
today
a new model comes out
you could
resell your iPhone for €700 on a second-hand site
how much of the €1,000 is sunk?
show answer
€300
Only what you cannot get back is sunk. The €700 resale value is still yours.
Keeping your iPhone costs you that €700 (you could have it instead).
paid €1,000 − resale €700 = €300 sunk
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of a sunk cost from my own life, using the basic concept of a sunk cost from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear a cost I have already paid and cannot get back, the decision I face now, and why that cost should not affect it. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
marginal vs average
one more · per unit
marginal = what one more unit adds to the total
average = the total divided by the number of units
average = the total divided by the number of units
spotify family
€18 a month for up to 6 people · 5 people → average €3.60 each · a 6th person costs €0 extra
you
one more study hour
marginal vs average
you run
a small café on campus · one coffee machine
each barista
costs you €100 per day
you tracked
daily sales on days with 1, 2, 3 and 4 baristas working
more baristas
serve more people, but they share one machine → each extra one adds less
how many baristas should work?
marginal vs average
each barista costs €100 per day
| baristas | sales per day you tracked |
average sales ÷ baristas |
marginal extra sales from this barista |
|---|---|---|---|
| 1 | €300 | 300 ÷ 1 = €300 | 300 − 0 = €300 |
| 2 | €520 | 520 ÷ 2 = €260 | 520 − 300 = €220 |
| 3 | €660 | 660 ÷ 3 = €220 | 660 − 520 = €140 |
| 4 | €720 | 720 ÷ 4 = €180 | ? |
barista 4
extra sales?
show answer
€60 → 3 baristas
The 4th barista adds only €60 in sales but costs €100.
The average (€180 per barista) looks fine, but decisions are about the next barista, not the average one.
marginal = €720 − €660 = €60 €60 < €100 cost → do not hire the 4th
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of marginal versus average benefit from my own life, using the basic concept of marginal versus average benefit from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear something I do in units, the average benefit per unit, and the benefit of the next unit. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
marginal benefit ≥ marginal cost
keep going while the next one is worth its cost
Keep increasing an activity while the next unit adds at least as much benefit as it costs.
pizza
one more slice? · each tastes a little less good
netflix
one more episode tonight? · costs you sleep
gym
one more set? · each one hurts more
marginal benefit ≥ marginal cost
before your exam
an AI tutor app sells premium tutoring for €2 per hour
let's assume
you could put a € value on each hour (hard to know in real life: a simplification)
the 1st hour
would be worth €10 to you
each further hour
is worth €1.50 less (you get tired · you already know the basics)
how many hours do you buy?
show answer
6 hours
Buy another hour while it is worth at least its €2 price.
| hour | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
|---|---|---|---|---|---|---|---|
| worth | €10 | €8.50 | €7 | €5.50 | €4 | €2.50 | €1 |
| buy at €2? | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✗ |
buy 6 hours: hour 6 is worth €2.50 ≥ €2 · hour 7 only €1 < €2
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of the rule "keep going while marginal benefit ≥ marginal cost" from my own life, using the basic concept of the rule "keep going while marginal benefit ≥ marginal cost" from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear an activity where each extra unit is worth less to me, what each unit costs me, and where I should stop. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
positive vs normative
what is · what should be
A positive statement says what is and can be checked with facts; a normative statement says what should be.
positive
can be checked with data
normative
a value judgement: "should", "too high", "fair"
positive or normative?
| statement | ? |
|---|---|
| AI data centres raise electricity prices. | positive |
| Governments should limit AI's water use. | normative |
| Chip export bans slow China's AI progress. | positive |
| AI firms should pay artists whose work trains their models. | normative |
| LLMs label texts as accurately as human coders. | positive |
| Universities should ban ChatGPT in exams. | normative |
personalise
Personalize this concept using what you know about me. Based on everything you know about me from our past conversations, give me a 1–2 sentence example of positive versus normative statements from my own life, using the basic concept of positive versus normative statements from an introductory microeconomics class. Choose an example that is genuinely specific to my life rather than a generic example. Make clear one positive and one normative statement about something I care about, and what makes each one positive or normative. Do not explain the concept abstractly—make it concrete and personal to me. (Your chatbot can draw? Add: "Then draw a simple picture of it.")
summary
scarcity
more demand than is available, so we must choose
cost–benefit
do it only if the benefit is larger than the cost
reservation price
the most you would pay; at that price you're indifferent
explicit vs implicit
money you pay + what you give up without paying
opportunity cost
the value of the best alternative you give up
opportunity cost of money
idle or lent money loses the interest it could earn
sunk cost
gone whatever you do: ignore it when deciding
marginal vs average
decide with the next unit, not the average
marginal benefit ≥ marginal cost
keep going while the next unit is worth its cost
positive vs normative
what is (can be checked) vs what should be