Welcome to Econ 1 Instructor: John Hartman Teaching Assistant: Rosemarie Lavaty

Important notes This is a small class  Ask questions The syllabus is posted online  See Attendance is an important part of this class, both directly and indirectly Text: Frank/Bernanke, Principles of Microeconomics If reading this size font is difficult, I urge you to sit near the front

Office hours and review sessions Office: NH 2028 Office hours: Wednesdays 12:30-2:30 pm Exception: Feb. 27 moved to Feb. 25, since Test 2 is scheduled Feb. 27 Review sessions will be announced about 2 weeks before each test

Some important dates Three tests, as of now scheduled for: Friday, Feb. 8 (in lecture) Wed., Feb. 27 (in lecture) Tues., March 18 (final, 8:45-10:45 am, room(s) to be announced) Grading: See syllablus

Today: An introduction to economics What is economics? Money? Finance? Part of the study of economics involves money and finance As we will see over the next 10 weeks, economics covers many topics

An introduction to economics What is economics? Frank and Bernanke (FB) define economics as “the study of how people make choices under conditions of scarcity and of the results of those choices for society” (p. 4)

Why is economics important to study? Study people’s and firms’ choices Theorize general tendencies of behavior Find ways to increase efficiency of the economy If there are more goods and services available, then there is “more of the pie” to go around

What is fair? Economists generally do not study this, since it is difficult to determine what is “fair” Instead, when possible, economists often try to find situations in which some people can be made better off without hurting others These situations are called Pareto improvements

Potential Pareto improvements International trade Removal of complaints from overbooked flights Replacing pollution controls with marketable permits (advanced idea) Improving property rights

What are some things that economists study? Individual markets (microeconomics) An economy as a whole (macroeconomics) This class addresses microeconomic issues Individual topics include: Highway congestion Marriage markets Education The environment Labor markets Health International trade

What will we do in Econ 1? Think like an economist does (Almost) always think in terms of marginal Opportunity costs typically matter Sunk costs typically do not matter Marginal  “one additional unit” For example, FB describe marginal benefit as “the increase in total benefit that results from carrying out one additional unit of an activity” (p. 11)

An example You have $10 available to buy energy drinks today Each energy drink costs you $2 Should you buy 5 energy drinks today?

Solution Buy an additional energy drink if Marginal Benefit (MB) exceeds Marginal Cost (MC) If MB = MC, you are indifferent about buying an additional energy drink If MB < MC, you will not buy an additional energy drink

Your benefit schedule

What should we do? We should buy the third energy drink since MB > MC (2.5 > 2) We should not buy the fourth energy drink since MB < MC (1.5 < 2) Note that we are NOT maximizing average benefit or total benefit

How to think like an economist Come to lecture Read the text Think, think, think Try to understand the “Economic Naturalist” problems Ask questions in lecture, section, and office hours Understand what is going on before moving to the next topic

Thinking like an economist: Grades Your choices over the next 10 weeks will help determine the grade you get in this class “Should I choose to spend a lot of time studying and try to get a good grade?” “Should I choose to sleep in and miss lecture?” Choices like these will help determine your grade

Summary Economists study many topics We have started to think like economists today Try to think in terms of marginals