to: Welcome Economics 100A
"Micro-Economic Analysis" Prof Glenn Woroch
9:30-11:00 AM, TuTh 2050 Valley Life Sciences
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Today's Meeting
Organizational matters
Quick review of syllabus
Intro to Micro Economics
Constrained maximization
Example: student time allocation
Equilibrium and optimum
Positive and normative questions
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Instructor: Glenn Woroch
Office: 585 Evans Hall Phone: [phone] Email: [e-mail] Office hours:
Tuesdays: 11:15AM - 12:15PM Thursdays: 1:30 - 2:30PM
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Prerequisites
Principles course
Econ 1, 2 or 3, EE&P 1, or equivalent Do not take simultaneously
Single-variable Calculus
Math 16A or 1A, or equivalent (e.g., Math 53) Will be used from time to time, but not essential to mastering the material
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Enrollment
Telebears, as usual Questions to: Jeff Butler (GSI Coordinator)
[e-mail] Office hours: 9:00AM-12:00noon through Feb 1st in 508-2 Evans
Also, undergrad adviser: Jenny Cornet
[e-mail]
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GSIs and Sections
No. 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 Days MW MW MW MW MW MW MW WF TuTh TuTh TuTh TuTh WF WF MW MW Time 8-9 AM 9-10 AM 10-11 AM 11-12 noon 1-2 PM 2-3 PM 3-4 PM 12-1 PM 1-2 PM 2-3 PM 11-12 noon 2-3 PM 10-11 AM 11-12 noon 11-12 noon 12-1 PM Room 51 Evans 51 Evans 55 Evans 55 Evans 31 Evans 39 Evans 61 Evans 35 Evans 35 Evans 61 Evans 41 Evans 51 Evans 35 Evans 41 Evans 51 Evans 51 Evans GSI Hank Hyatt Hank Hyatt Michael Schihl Michael Schihl Deric Licko Patricia (Lynn) Scholl Patricia (Lynn) Scholl Ken Zheng Deric Licko Joshua (Brock) Mendel Vinci Chow Vinci Chow Ailien Tran Ken Zheng Ailien Tran Michael Schihl
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GSIs and Sections (cont'd)
Find your GSI (if he or she is here) Welcome to "section hop"
But "official" GSI responsible for grading
Must be attend one section the first full week or be dropped
Tuesday, Jan 22nd through Monday, Jan 28th
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Problem Set Schedule
Problem Set 1 2 3 4 5 Posted Jan 29 Feb 12 Mar 6 Mar 20 Apr 17 Due in lecture Feb 7 Feb 21 Mar 18 Apr 3 May 1
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Problem Sets (cont'd)
Questions and answers posted to bSpace Grading
Graded by your "official" GSI Use the "Check System"
Study groups are encouraged
Maximum of 3 students Submit one answer sheet Same grade for all members
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Exams
Two in-class midterms
Thursday, February 28th Thursday, April 10th No make-ups--see policy in syllabus
Final exam
At regular time (May 15th) and place (TBA) Cumulative
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Grading
25% 35% 10% 5% ____ 100% - each midterm - final exam - five problem sets combined - class and section participation
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Textbook
Besanko & Braeutigam, Microeconomics, 3rd edition, Wiley, 2007 - not 1st edition - 2nd edition risky Microeconomics, Study Guide, 3rd edition, 2007.
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Alternative Access to Lectures
bSpace course website
PDF version of lecture slides
Podcast of lectures downloadable
"iTunes U":b itunes.berkeley.edu/ Also at: webcast.berkeley.edu/
No ASUC Lecture Notes
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Responsibilities & Availability
Administrative questions
Dept staff, e.g., 100A enrollment, Econ major
Course questions
Always your "official" GSI first
Broader issues
Email me re: incompletes, personal (e.g., health)
Email policy
GSIs need respond only to "their" students We work regular hours: M-F, 9-5 (not 24/7)
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Course Outline
Three parts, with an exam for each
Consumer and producer behavior Perfect competition and pure monopoly Imperfect competition and market failures
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What is micro-economics?
Study of how consumers, firms and other "agents" make economic decisions, and how they interact in markets to allocate scarce resources to satisfy unlimited wants. Use "models" to represent decision making and market interaction.
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A micro-economic problem
Decisions, decisions, decisions...and 100A
Near term: Enroll, credit or P/NP, buy book (new or used), attend lecture and sections, study time, etc. Longer term: Take follow-on courses, become an Econ major, go to grad school or get a job, and so on.
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A Benefit-Cost Analysis
Benefits
Private:
improved performance (grade), self satisfaction increased expected, discounted lifetime earnings
Social (spillovers): voters, informed better parents
Costs
Direct cost
Tuition: $4,200 x = $1,050/course $37.50/lecture Less financial aid, plus books, computer
Opportunity cost:
Time spent on other courses, work, sleep, parties Less money spent on housing, transportation
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Simple time allocation problem
Student (constrained) optimization problem
Private benefits a function of time: B(T) Private costs also depend on time: C(T) Surplus is the difference: S(T) = B(T) C(T) Devote time to this course to maximize difference between private benefits and costs: B(T)-C(T) Constrained by 24 hours in a day: 0 T 24
Solution: equate marginal benefit and marginal cost of time
Notation: MB(T) = MC(T) at T = T*
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Graphical analysis
Value ($) C(T) B(T)
T*
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T (hours)
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S(T) =B(T) C(T)
Mathematical analysis
Maximize: S(T) = B(T) C(T)
Subject to: 0 T 24
Solution: at the optimum we have ...
dS (T ) dB(T ) dC (T ) = - =0 dT dT dT
In other notation: MB(T*) = MC(T*) In words: "marginal benefit equals marginal cost" The "mantra of microeconomics"
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A more complicated model
Two types of time
In class (lecture, section) time: Tin
Include time asleep in class?
Outside class time: Tout
Alone with text and materials, participating in study group, listening to podcast
Allocate total 100A time
Between two types: 0 Tin + Tout 24
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A more complicated model
Surplus depends on both types
S(Tin,Tout) = B(Tin,Tout) - C(Tin,Tout)
Student's problem: choose Tin and Tout to
Maximize: S(Tin,Tout) Subject to: 0 Tin + Tout 24
How might two types contribute to grades (one measure of benefits of this course)?
Substitutes? Complements?
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A more complicated model
Microeconomics is a study of "tradeoffs" (a second matra) Nobel laureate Gary Becker first to analyze "the allocation of time"
Applied to wide range of human activities including teeth brushing and cannibalism
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Tout
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Time Allocation
F(Tin,Tout ) = course score
Tin + Tout = 24
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Tin
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Good micro models are testable
Our student time allocation model generates hypotheses that are refutable
A change in benefits or costs will cause T* to increase or decrease. Can collect data to see if implication is supported This is a "positive" economic statement. Compare against "normative" statement (e.g., "you should spend X hours per week on Econ 100A" or "you should attend all lectures")
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Empirical evidence
Schmidt (1983): U.S. econ principles course
Marginal product of lecture > discussion section > study time MPlecture = 1.01, MPsection = 0.78, MPstudy = 0.05
Bratti & Staffolani (2002): Italian undergrads
Elasticity of study > elasticity of lecture > 0 study = 0.097, lecture = 0.084
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Empirical evidence (cont'd)
Romer (1993):
Attendance... All lectures vs. None 1.4 and 2.5 grade pts. All lectures vs. Half of lectures
Benefit of Attending UCB Econ 100B Lectures
...Is Worth Between...
0.7 and 1.2 grade pts.
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Two kinds of statements
Positive: what will happen
Higher part-time wage rates will result in reduced inclass time. As students move further away from campus, class attendance will fall.
Normative: what should happen
Students should spend more time going to lecture, and less time studying alone. Instructors should subsidize (free latas?) lecture attendance.
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Constrained optimization
Student's time allocation problem is a good example:
Maximize: S(T1, T2, ..., Tn) Subject to: T1 + T2 +...+ Tn 24
Captures the essence of microeconomics
Objective function is "unlimited wants" Constraint captures "scarce resources"
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Constrained optimization
Other examples of decision makers
Individual consumer, household, family
Maximize well being limited income and wealth
Sole proprietor, corporation, non-profit
Maximize profit given cost of labor and materials and production technology
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Bringing it all together: Equilibrium
Agents solve their constrained optimization problems They buy & sell goods & services in a "market" No tendency for any one of them to change their decisions This is what Supply and Demand Analysis is all about ... next time.
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