Unformatted text preview: Principles of Economics I
Economics 101 Section 400 Class 1 Instructor Information Chad Hogan [email protected] Lorch M109 936 2745 Office Hours: Monday & Wednesday 10:30 am 12:00 noon Lorch M109
Class 1 2 1/7/2009 Course Materials Text: Hubbard & O'Brien, Study Guide Microeconomics, 2nd Ed., Prentice Hall, 2006 Optional CTools 1/7/2009 Syllabus Lecture slides Assignments Announcements Grades Etc. Class 1 3 Assessment Option 1
Exam 1 Exam 2 Final Quizzes 20% 20% 40% 20% 1/7/2009 Class 1 4 Assessment Option 2
Exam 1 Exam 2 Final 25% 25% 50% 1/7/2009 Class 1 5 Exams Final Exam: April 28, 10:30 am 12:30 pm Other exams: Exam I: Feb. 11, 8:00 pm 10:00 pm Exam II: March 24, 8:00 pm 10:00 pm 1/7/2009 Class 1 6 Assignments and Quizzes Weekly problem sets will be assigned Not assessed directly Quizzes in discussion section:
January 15 and 16 (week 2) January 29 and 30 (week 3) March 5 and 6 (week 8) March 12 and 13 (week 9) April 2 and 3 (week 12) Class 1 1/7/2009 7 Other 101 sections Please, do NOT attend other 101 lectures Not perfectly substitutable Not identical material Reflect outlooks and priorities of different faculty members Not the same exams Please do NOT attend discussion sections other than that for which you are registered 1/7/2009 Class 1 8 Attendance Attendance at lecture or discussion section is not compulsory Attendance at lecture and discussion section is strongly recommended No sympathy for absentees Quizzes provide rewards for discussion section attendance Please: take responsibility for your own education, and make the effort to get everything you can out of the resources provided for you
Class 1 1/7/2009 9 Syllabus A copy of the syllabus can be found, perused and downloaded from CTools Includes all the administrative information I've provided today Includes an outline of topics covered through the term Includes a reading guide 1/7/2009 Class 1 10 And now... ...for a hint of things to come... 1/7/2009 Class 1 11 SCARCITY
The inability to satisfy desires with available resources. Scarcity abounds!
1/7/2009 Class 1 12 The Economic Problem How do we allocate scarce resources to satisfy limitless wants?
What to produce? How to produce it? For whom to produce? An economic system is a collection of institutions that determines how these three questions will be answered
Class 1 13 1/7/2009 Positive Economics Asks questions for which there exist real, objectively verifiable answers: Examples: If the price of gas rises, will people use more or less gas? If people expect inflation to rise next year, will they wish to purchase more real estate? If interest rates start to rise, will firms choose to hire more workers? If we cut taxes on low income earners, will firms hire more unskilled workers?
Class 1 14 1/7/2009 Normative Economics Asks more problematic questions Should we cut income taxes for low income earners? Should we bail out the "big three" car manufacturers? Should we buy up large quantities of worthless assets from banks in order to prevent the financial system from collapsing? Answers to such questions can never be verified as objectively correct Always value judgments involved
Class 1 15 1/7/2009 Positive v Normative Economics Generally commitment to the idea of economics as a positive discipline No discipline is logically adequate to defend normative statements Most economists think this makes them seem much more like scientists Despite this, most economists embrace at least one normative idea (whether implicitly or explicitly) as selfevident Class 1 16 1/7/2009 Efficiency Consider how resources are currently allocated Imagine reallocating resources in such a way that:
Nobody is made worse off At least one person is made better off Do you think that such a reallocation should take place? Class 1 17 1/7/2009 Example Amy, Bill and Chris all win iPods Amy wins a black iPod, but would have preferred a white one Bill wins a white iPod, but would have preferred a black one Chris wins a silver iPod, but would have preferred a black one Do you think that this is the best allocation of the iPods? Should the allocation change? 1/7/2009 Class 1 18 Efficiency Normative statement: Any reallocation of resources that makes at least one person better off, and makes no person worse off, should be pursued We call such a reallocation of resources a "Pareto Improving" Reallocation (or simply a Pareto Improvement) 1/7/2009 Class 1 19 Efficiency
Implication: We should not be satisfied with an allocation if it is possible to make at least one person better off without making another worse off. Such an allocation will be called inefficient.
1/7/2009 Class 1 20 Efficiency Definition: An allocation of resources is efficient, or Pareto efficient, if reallocating resources to make one person better off will necessarily make another person worse off. 1/7/2009 Class 1 21 How do markets allocate resources? How efficiently does the market allocate resources? Are there remedies available when markets fail to allocate resources efficiently ? Main Questions i.e. can we improve upon the market outcome to make some people better off without making anybody worse off?
Class 1 1/7/2009 22 ...
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