Welcome to Econ 1Important notesOffice hours and review sessionsSome important datesToday: An introduction to economicsAn introduction to economicsWhy is economics important to study?What is fair?Potential Pareto improvementsWhat are some things that economists study?What will we do in Econ 1?An exampleSolutionYour benefit scheduleWhat should we do?How to think like an economistThinking like an economist: GradesSummaryWelcome to Econ 1Instructor: John HartmanTeaching Assistant: Rosemarie LavatyImportant notesThis is a small class Ask questionsThe syllabus is posted online See http://econ.ucsb.edu/~hartman/Attendance is an important part of this class, both directly and indirectlyText: Frank/Bernanke, Principles of MicroeconomicsIf reading this size font is difficult, I urge you to sit near the frontOffice hours and review sessionsOffice: NH 2028Office hours: Wednesdays 12:30-2:30 pmException: Feb. 27 moved to Feb. 25, since Test 2 is scheduled Feb. 27Review sessions will be announced about 2 weeks before each testSome important datesThree 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 syllablusToday: An introduction to economicsWhat is economics?Money?Finance?Part of the study of economics involves money and financeAs we will see over the next 10 weeks, economics covers many topicsAn introduction to economicsWhat 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’ choicesTheorize general tendencies of behaviorFind ways to increase efficiency of the economyIf there are more goods and services available, then there is “more of the pie” to go aroundWhat 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 othersThese situations are called Pareto improvementsPotential Pareto improvementsInternational tradeRemoval of complaints from overbooked flightsReplacing pollution controls with marketable permits (advanced idea)Improving property rightsWhat are some things that economists study?Individual markets (microeconomics)An economy as a whole (macroeconomics)This class addresses microeconomic issuesIndividual topics include:Highway congestionMarriage marketsEducationThe environmentLabor marketsHealthInternational tradeWhat will we do in Econ 1?Think like an economist does(Almost) always think in terms of marginalOpportunity costs typically matterSunk costs typically do not matterMarginal “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 exampleYou have $10 available to buy energy drinks todayEach energy drink costs you $2Should you buy 5 energy drinks today?SolutionBuy an additional energy drink if Marginal Benefit (MB) exceeds Marginal Cost (MC)If MB = MC, you are indifferent about buying an additional energy drinkIf MB < MC, you will not buy an additional energy drinkYour benefit schedule# of drinks Total benefit ($)MB ($)Avg. benefit0 0 N/A51 5 532 8 42.53 10.5 3.51.54 12 3-15 11 2.2What should we do?# of drinks Total benefit ($)MB ($)Avg. benefit0 0 N/A51 5 532 8 42.53 10.5 3.51.54 12 3-15 11 2.2We 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 benefitHow to think like an economistCome to lectureRead the textThink, think, thinkTry to understand the “Economic Naturalist” problemsAsk questions in lecture, section, and office hoursUnderstand what is going on before moving to the next topicThinking like an economist: GradesYour 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 gradeSummaryEconomists study many topicsWe have started to think like economists todayTry to think in terms of
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