Microeconomics Lecture 1

Instructor Introduction

The course will cover the following main topics:
1. Course Details
2. Introduction to Microeconomics
3. Supply and Demand

Not Everything Will Be Written on the Board: It's essential to pay attention to what is said, not just what is written.
High Engagement: Students are encouraged to ask questions anytime to slow down the pace and to clarify doubts.
Inclusive Language: The term “guys” is used in a gender-neutral way to mean “people”.

Microeconomics studies how individuals and firms make decisions in a world of scarcity.
Scarcity is a fundamental concept, driving microeconomics.
Economics involves constrained optimization: making the best possible choices given constraints.
Opportunity Cost: Every action or inaction has a cost which is the next best alternative given up.

A larger focus on policy will be covered in another course (1441) not taught this year but available in the spring.

Model Overview: Simplified representations of real-world phenomena to understand economic principles.
Supply and Demand Graph:
- X-Axis: Quantity of goods
- Y-Axis: Price of goods
- Demand Curve (Downward Sloping): Higher prices lead to lower quantity demanded.
- Supply Curve (Upward Sloping): Higher prices lead to higher quantity supplied.
- Market Equilibrium: Where the demand and supply curves intersect. Both consumers and producers are satisfied.
Example: Market for roses - Demand and supply meet at 3 dollars for 600 roses.

Models are simplified but offer helpful insights (based on George Box's idea that all models are wrong, but some are useful).
Economic models are used to understand real-world phenomena through various assumptions.

Positive Analysis: Study of how things are (e.g., why did the price of kidneys in an auction go so high).
Normative Analysis: Study of how things should be (e.g., should kidneys be allowed to be sold on the market).

Bids for a kidney reached millions before being shut down by eBay, demonstrating high demand vs limited supply.
Normative Questions: Should the sale of kidneys be allowed? Discuss fairness, market failures, and potential behavioral issues.

Capitalistic Economy: Firms and individuals decide production and consumption; minimal government intervention.
Command Economy: Government makes all production and consumption decisions.
Impact: Capitalistic economies have led to tremendous growth but also significant inequality.

Invisible Hand: Notion that individual self-interest in a capitalistic economy will lead to positive societal outcomes.
Market Failures: Situations where markets do not work perfectly, leading to potential government intervention.

Demand: How consumers decide what to buy given resources (utility maximization and budget constraints).
Supply: How firms decide what to produce (input and output decisions, market structures).
Market Failures: Real-life deviations from theoretical models, importance of equity, and behavioral economics.
Lectures and Sections: Both are important; sections will involve problem-solving and new material.
Problem Sets: Assigned every week and cover materials taught up to the assignment date.