class1_intro_

class1_intro_ - Econ 51, Winter 2011 Class #1 Welcome! Be...

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1 Econ 51, Winter 2011 Class #1 • Welcome! Be sure to pick up a syllabus and a tentative class schedule. • Today: course overview and logistics. Tuesday, January 4, 2011
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2 Class Overview Tuesday, January 4, 2011
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3 Class overview This is a sequel to Econ 50. In Econ 50 you (mostly) studied individual decision making, i.e., (1) maximizing utility (by an individual), and (2) maximizing profits (by a firm). Most of Econ 51 is mostly about interactions among multiple agents. The interactions can take many forms, and the form of interaction may significantly affect what happens. The theories we will learn in this class provide the foundation of almost all modern economics , and are therefore essential for almost all upper division courses. Tuesday, January 4, 2011
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4 Class overview As in Econ 50, most (though not all) theories in the class are based on the following presumptions: • Agents are “rational”: they maximize utility (even if this is very complicated). • Agents are “selfish”: all they care about is their own utility. • Agents respond to incentives and will change their behavior if (and only if) they gain something from it. Tuesday, January 4, 2011
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5 Class overview Throughout, you’ll be thinking “does it all make sense?” (a healthy dose of skepticism!) Obviously people don’t always behave according to our theory. There are several reasons that the theory is still useful: • The theory provides good approximations. Behavior may fit the model on average , so the models are good to describe aggregate behavior. • Individuals may optimize even if they don’t do it consciously. The theory cannot explain everything (no other theory can): We will discuss when and how during the quarter as well. Tuesday, January 4, 2011
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6 Main topics • Decisions under uncertainty (more of an Econ 50 topic) • General equilibrium: what happens in multiple markets when parties interact by taking prices as given. • Main results: competitive markets provide efficient outcomes (Adam Smith’s “invisible hand”). • Examine how relaxing assumptions generate inefficiency (or not): – Externalities and public goods, – Strategic considerations: Game Theory, – Asymmetric information Tuesday, January 4, 2011
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Topics in Some Detail Tuesday, January 4, 2011
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8 Decision under Uncertainty In Econ 50 you analyzed individuals’ decisions when the outcome is certain (which is often unrealistic!). How can we extend this framework to environments which are uncertain? Examples for questions we will be able to analyze: • How should you allocate an investment portfolio? • Should you buy extended warranties? • Why do insurance markets exist and how?
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class1_intro_ - Econ 51, Winter 2011 Class #1 Welcome! Be...

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