Christopher Campos | Interactive Microeconomics Tools

These visualizations are meant to be a tool to help visualize some of the examples we cover in class.

Lecture 1: Supply and Demand

1. Coffee at Booth: Building a Demand Curve

100 Booth students numbered #0–#99, where person #i has WTP = $i. Drag the price line to see how many students buy at each price — the step function IS the demand curve. Toggle the smooth approximation Q_D = 100 − P.

2. Demand Shifters: Inferior vs Normal Goods

When income rises, demand for inferior goods (Dollar General) shifts left, while demand for normal goods shifts right. But how much prices and quantities change depends on the elasticity of demand: steep (inelastic) demand like gasoline means big price swings; flat (elastic) demand like restaurant meals means big quantity swings.

3. Supply Shifters: Elastic vs Inelastic Supply

San Francisco housing has inelastic (steep) supply — building more is extremely difficult. Houston has elastic (flat) supply — land is plentiful. The same cost shock produces very different outcomes: prices surge in SF, while quantity drops in Houston.

4. The Elasticity Explorer

Elasticity varies along a linear demand curve: elastic near the top (high price, low quantity), inelastic near the bottom (low price, high quantity), and unit elastic at the midpoint. Switch between arc elasticity (two draggable points) and point elasticity (one point) to see the formulas in action.

5. Streaming Wars: Revenue and Unit Elasticity

Online movie streaming: you buy rights for a fixed cost, then sell downloads at zero marginal cost. R(P) = P(100 − P). Revenue is maximized at unit elasticity (P*=50). Should you raise your price?

Lecture 2: Taxes and Price Controls

6. Taxes: Where Does the Money Go?

A tax drives a wedge between what buyers pay and what sellers receive. The government collects revenue, but consumer and producer surplus both shrink — and some transactions that would have happened no longer do, creating deadweight loss. Does it matter whether the tax is legally imposed on sellers or buyers? Slide the tax rate to find out.

7. Who Bears the Tax? Elasticity and Tax Incidence

Consumer share = ε_S / (|ε_D| + ε_S). Tobacco: inelastic demand → consumers bear most of the tax. Marlboro Golds: elastic demand (people switch brands) → producers bear most. The more inelastic side bears more of the burden.

8. Uber Surge Pricing: Price Ceilings and Wait Times

New Year's Eve: demand for Uber rides surges. With surge pricing, the price rises and the market clears — no shortage. But a "technical glitch" keeps the price at the old level: that's a price ceiling. The result? A shortage of rides and long wait times. When price can't ration, time does the rationing instead.

Lecture 3: Consumer Theory

9. Indifference Curve Builder

Drag the reference basket on a 20×20 grid. Every other basket is colored: green = strictly preferred, red = strictly worse, gold = indifferent. Switch utility functions to see how the shape of indifference curves changes.

10. MRS Explorer: The Slope of Indifference

Every point on an indifference curve gives the same utility — you’re equally happy anywhere along it. The MRS (slope of the curve) tells you: “how much Y would I give up for one more X?” As you slide right and accumulate more X, each extra unit is worth less Y to you — that’s diminishing MRS. The parameter α controls how much you value X relative to Y.

11. Utility Function Playground

Three classic utility functions, three very different indifference curve shapes. Cobb-Douglas: smooth, convex curves (coffee and donuts). Perfect Substitutes: straight lines (Coke vs Pepsi). Perfect Complements: L-shaped (left and right shoes). Adjust the parameters to see how the curves respond.

12. Budget Line Dynamics

The budget line shows all affordable bundles: pₓx + pₚy = M. Change prices or income to see the line pivot or shift. Try “Double All Prices & Income” — the budget set doesn’t change! Only relative prices matter.

13. Finding the Consumer's Optimum

Drag the point along the indifference curve. At each position, the dashed tangent line shows the MRS — your relative value of X in terms of Y. When MRS > p_x/p_y, your relative value of X is higher than the relative market value — buy more X. At the tangency, MRS equals the price ratio, which is what we call the “bang for your buck” condition: MU_x/p_x = MU_y/p_y. In other words, the dollar value you get from an additional unit of X equals the dollar value you get from an additional unit of Y. Drag the point along the indifference curve to see the bang for your buck condition in action.

14. Income & Substitution Effects for Normal Goods

Starting from p_x = $10, change the price of X to see two forces at work. The substitution effect (A→B): holding utility constant (staying on the same indifference curve), you substitute toward the relatively cheaper good. The income effect (B→C): the price change makes you effectively richer or poorer, shifting you to a new indifference curve. For a normal good, both effects reinforce each other.

Lecture 4: Monopolies

15. Revenue Decomposition & Marginal Revenue

A monopolist faces inverse demand P(Q) = A − BQ. Revenue is R = Q·P(Q), and marginal revenue MR = A − 2BQ has the same intercept but twice the slope. Selling one more unit gains P(Q) but loses Q·ΔP on all existing units — drag the quantity to see the decomposition.

16. The Monopolist's Problem: MR = MC

The monopolist maximises profit by setting MR = MC, producing Q^m and charging P^m. Compared to the efficient outcome (P = MC), output is lower and price is higher — creating deadweight loss. Toggle the efficient outcome to compare.

Lecture 5: Costs & Technology

17. Cake Factory: Cost Minimization Across Technologies

Three ways to bake Q cakes: Hand (spoon & bowl, no capital, high labor), Mixer ($100 capital, moderate labor), or Robot ($1000 capital, minimal labor). Each technology has a different cost line — the optimal choice depends on scale. The bold lower envelope is the firm’s actual cost function C(Q). Adjust the wage or ingredient cost to see how input prices shift the crossover points.

18. Isoquants & Marginal Products

A Cobb-Douglas production function f(L,K) = L^aK^b. Each isoquant shows all input combinations that produce the same output. Slide the labor input to move along an isoquant — the tangent line’s slope is the MRTS, telling you the rate at which you can trade capital for labor while keeping output constant. Arrows show the direction and magnitude of marginal products.

19. Opportunity Cost

The cost of something is what you give up to get it. In the restaurant example, owning the building doesn’t eliminate the cost — it just shifts it from an explicit rent payment to an opportunity cost (the rent you could be collecting). The total economic cost is the same either way. In the MBA example, tuition is just the sticker price. The full economic cost also includes the salary you forgo by being in the classroom instead of working — often the largest piece of the cost of an MBA.

20. The Sunk Cost Fallacy

A sunk cost is a cost you’ve already paid and can’t recover. It should be irrelevant to forward-looking decisions — yet it routinely distorts judgment. Choose an example to see why: the fighter jet shows how sunk costs can lead you to either wrongly continue or wrongly abandon a project. The concert ticket reveals how mental accounting makes identical financial situations feel different.

Lecture 6: Competitive Supply & Costs

21. Cost Minimization: Iso-Cost Meets Isoquant

The firm must produce Q units using labor and capital. Drag the point along the isoquant (the constraint — all input mixes that produce exactly Q). At each position, the dashed tangent line shows the MRTS — how much capital the firm can trade for one more unit of labor while keeping output fixed. When MRTS > rₗ/rₖ, the output-per-dollar from labor exceeds that of capital — use more labor. At the tangency, MRTS equals the input price ratio, which is the “bang for the buck” condition: MPL/rₗ = MPK/rₖ. In other words, the last dollar spent on labor produces exactly the same extra output as the last dollar spent on capital. Drag the point along the isoquant to see the bang for the buck condition in action. Change Q to see the isoquant shift.

22. Returns to Scale & the Shape of Costs

The Cobb-Douglas exponent sum (a+b) determines returns to scale, which in turn determines the shape of costs. CRS (a+b=1): linear total cost, constant MC. DRS (a+b<1): convex total cost, increasing MC — each extra unit costs more. IRS (a+b>1): concave total cost, decreasing MC — the firm benefits from scale.

23. Short-Run vs Long-Run Costs

In the long run, you can adjust all inputs freely and costs are as low as possible. In the short run, some inputs are fixed — you’re stuck with the factory (capital) you already built. If demand turns out higher or lower than planned, you can only adjust labor, and that’s more expensive than if you could redesign the whole operation. The SR cost curve is always above the LR cost curve, except at the one output level your factory was designed for, where they just touch. This uses the lecture example: f(L,K) = 6√(LK), rₗ = 10, rₖ = 40. The LR cost is linear (CRS). Set Q₀ to choose your factory size, then move Q to see the cost of being stuck in the short run.