1. Lecture 1: Introduction
Li Gan
Department of Economics
Texas A&M University

2. Syllabus Weekly quizzes - 20% Homework assignments – 20%
Two midterm exams – 15% each
Final exam – 30%

3. Syllabus Each quiz: 3 multiple choice questions Each homework:
25 multiple choice questions – please use scantron
3 essay questions

4. Syllabus First midterm: Tuesday, Feb 22nd, in class.
Second midterm: Tuesday, March 31st, in class
Final: Friday, May 6th: 12:30-2:30
Makeup exam: Saturday, May 7th.

5. Office Hours Gan: TA: Gaosheng Ju TuTh 11:30-1:00pm or by appointment
Allen 3086
Phone:
TA: Gaosheng Ju
MW 10:00am – 11:30am
Allen 3012
Phone:

6. Introduction Key factors in making choices or optimization
Key difficulty in economics
Key tools for this course
Key questions in this course

7. Key factors to making choices or optimization
Making choices under scarcity
For individuals, key factors to make choices?
For firms, key factors to make choices?
For government, key factors to make choices?

8. Key factor #1: objective
All decisions require an objective.
What is your objective of taking this course?

9. Key factor #1: objective
Individual objective:
Utility
Firm objective:
Profit
Government objective: ?

10. Key factor #2: constraints
Budget constraint
Time constraint

11. Budget constraint Individual budget constraint? Income
Government budget constraint?
Tax revenue

12. Key factor #3: choose at margin
Compare marginal cost and marginal benefit.
When they are equal, the optimal is achieved.

13. Choose at the margin: For firms:
The cost of hiring additional worker is his/her wage.
Compare with the benefit of having this additional worker.
If benefit > cost, hire
If benefit < cost, not hire

14. New concept from this course:
Overtime optimization
Individual overtime optimization?
Working right now, enjoy later
Studying in college and making more money later

15. Overtime optimization
Government overtime optimization
Borrowing money to spend: budget deficit – 14 trillion dollars of debt!

16. Externality:
Question: is self interest consistent with social interest?

17. Examples
Most are consistent
Entrepreneurship

18. Examples Noisy party late on Friday night
Ongoing financial crisis – Soloman Brothers and other investment banks borrow 30 times of their own capital to invest

19. Examples Medical services Free medical service
Co-pay in medical expenditure

20. The key difficulty in economic research
Difficulty in establishing causality
Example:

21. Example: Demand and supply
Question: during Christmas seasons, demands for both consumer goods and air travel are higher.
Why prices are often lower for consumer goods?
Why prices for air tickets are often higher?

22. Demand and supply
Price
supply
demand
quantity

23. Demand and supply for consumer goods during Christmas seasons
Price
supply
demand
quantity

24. Demand and supply for air travels goods during Christmas seasons
Price
supply
demand
quantity

25. Causality is difficult to establish
Because many factors are changing simultaneously, it is difficult to establish the causality.

26. Key tools for studying this course
Graphs
Mathematics

27. Graphs – a time series graph

28. Relationships between two variables: income per person and investment ratio

29. Necessary mathematics

30. Necessary mathematics

31. Necessary mathematics

32. Key questions to be answered in this course:
Why we have achieved so much
But why growth is not smooth

33. Key question #1: why we have achieved so much

34. Key questions #2: why growth is not smooth - price

35. Key question #2: why growth is not smooth: unemployment

36. Summary Keys to optimization: Key difficulty: causality
Objectives
Constraints
Choose at margin
New concept: overtime optimization
Key difficulty: causality
Key tools for this course: graph and math
Key questions:
Why we have achieved so much.
Why growth varies so much overtime.