Economics 115b: Introductory EconomicsTuesday-Thursday 1:00 - 2:15SSS 114Mr. George J. Hall and FacultyYale University1Introduction: Mechanics and the Big Picture1. Course Mechanics2. What is Economics?• People Face Tradeoffs• The Cost of Something is What You Give Up to Get it3. What is Microeconomics?4. The Need for Models5. Policy6. The Production Possibilities Frontier2Course Mechanics• Economics 115b is an introductory, survey course in microeconomics.– topics in both economic theory and policy.• Economics is the study of how scarce resources (such as our time andstuff) are allocated.• The course will develop a theoretical framework for this analysis andshow how this framework can be applied to real-world issues such aspollution abatement, crime, international trade policy, and the role ofmarkets and government in our society.3• The first half will focus on models of “perfect” competition with an em-phasis on the conditions necessary for achieving efficiency in productionand distribution.• The second half will emphasis departures from perfect competition andthe role of government in regulating trade.• There is no prerequisite for this course, although we recognize thatmany of you have taken or will take Economics 116 – IntroductoryMacroeconomics.4Course Mechanics• This class will be team-taught: lectures and section per week.• This class will have one mid-term exam and a final exam. The finalexam will be cumulative. The final exam will be Wednesday, May 3 at2PM. An early final will not be given.• There will be 10 problem sets (about one a week). In general I will postthem on the course web page on Tuesday. They will be due at the startof class the following Tuesday. The TAs will go over them in sectionthat week.• You may work together on problem sets; but write them up separately.Resist the temptation to simply copy some else’s answers.• Your course grade will be determined by your performance on the twoexams, your problem sets and section participation. The weights are:30 percent for the midterm; 50 percent for the final; and 20 percent forthe problems sets and section participation.5Outside of Lectures• We have an excellent team of teaching fellows:– Shamena Anwar– Luigi Balletta– Daniel Monte– Farooq Naseer– Marzena Rostek– Maher Said• TA sessions start next week (hopefully!).• My office hours will be Wednesday’s from 1:00 - 3:00. You may also setup an appointment with me if that time is not good for you. E-mail isperhaps the best way to get in touch with me.6Textbooks• The primary textbook will be using is Pindyck and Rubenfeld’sMicroeconomics. It is available from the Yale Bookstore. You canalso buy it from amazon.com.• For the first two lectures (today and Thursday), we will use he first twochapters of Samuelson and Nordhaus’ Intro Textbook. Copies shouldbe on reserve at Cross Campus.• There is also a course packet that is required for this course. It is avail-able from Yale Repographics and Imaging Service (RIS), 155 Whitney.You can order off their webpage.7More Stuff• I hope that you do ask questions in the class.• This course has a web page: http://www.econ.yale.edu/~gjh9/econ115b/.On this web page I post announcements about the class and sections.I recommend that you check it regularly.• I also post my overhead on the web page a day or two before lecture.This is designed to help you get more out of lectures. But it is not asubstitute for lectures.8What is Economics?• According to Newsweek (1/2/2006, page 21), it is the sexiest tradealive.• Economics is the study of how people decide to allocate scarce resources.• CLAIM: 95 percent of the problems you solve in life are economic.• Many conflicts and much suffering around the world are due, at root,to the problem of scarce resources.• Questions of scarcity are not confined to just matters of money.– Slots for undergraduate admission at Yale are a scarce resource.– Courses during your four years here at Yale.– Bill Gates’ economic problem?– Love and marriage.9People Face Tradeoffs• You have to give up something in order to get something.• If Yale decides to accept one person for admission that means that someother student will be declined.• Economic questions always involve a tradeoff. In other words,There is no such thing as a free lunch.You don’t get something for nothing.10Looking ahead ...• Looking ahead, there is a tradeoff between equity and efficiency.• Samuelson and Nordhaus define of efficiency as:The economy is producing efficiently when it cannot increase theeconomic welfare of anyone without making someone else worseoff.• What is economic welfare exactly?• Samuelson and Nordhaus don’t define equity so let’s define it asthe property of distributing economic goods and services “fairly”among members of society.• In other words, efficiency refers to the size of the economic pie, andequity refers to how the pie is divided.11The Cost of Something is What You Give Up to Get It• Because people face tradeoffs, making decisions requires comparing thecosts and benefits of alternative choices.• What does it really cost you to attend Yale for a year?– But what else have you given up to come to Yale?– These other costs are the opportunity costs of attending Yale.• From page 14 of Samuelson and Nordhaus:In a world of scarcity, choosing one thing means giving up some-thing else. The opportunity cost of the decision is the value ofthe good and service foregone.• The golfer Tiger Woods.• So what is the opportunity cost of taking this class?12What is Microeconomics?• Microeconomics is the study of how households and firms make decisionsand how they interact in specific markets.• Macroeconomics, on the other hand, is the study of economy-wide phe-nomena.• Did I mention that according to Newsweek (1/2/2006, page 21), eco-nomics is the sexiest trade alive?13In the realm of microeconomics we study questions such as:1. What determines the price of a particular good or service?• Why are some goods and services (e.g. water, kindergarten teach-ing) inexpensive and others (e.g. diamonds, Paris Hilton’s talent)expensive?• Why do the prices of some goods move dramatically over time (e.g.gasoline) while others are relatively constant (e.g. hair cuts)?2. How can it be that different customers are charged very different pricesfor essentially the same good or service