1. Introduction and Supply & Demand

Summary

In this introductory microeconomics lecture, John Gruber covers course details, defines microeconomics as the study of decision-making in a world of scarcity, and introduces the fundamental concepts of supply and demand. He emphasizes the importance of understanding opportunity costs and the distinction between positive and normative analysis, using the example of eBay kidney auctions to illustrate these points.

Takeaways

• 😀 The course has a policy angle focusing on economic and government policy, aiming to make economics exciting by understanding the relevance of the topics covered.
• 📚 Professor Gruber encourages students to engage actively in class, asking questions to clarify doubts and slow down the lecture pace if needed.
• 🖋️ The professor admits to having poor handwriting and emphasizes that students should not hesitate to ask for clarification on what is written on the board.
• 🎓 The course will cover microeconomics basics, including constrained optimization and opportunity cost, before diving into more complex topics.
• 💡 Opportunity cost is highlighted as a critical concept in economics, emphasizing that every action has a cost in terms of the next best alternative.
• 🌐 Microeconomics is described as the study of how individuals and firms make decisions in a world of scarcity, focusing on constrained optimization exercises.
• 📈 The supply and demand model is introduced as the first model of the course, using the example of the water diamond paradox to illustrate the interplay between demand and supply.
• 🤔 The distinction between positive and normative analysis is discussed, with positive analysis focusing on how things are and normative analysis on how things should be.
• 💼 The lecture touches on the debate around the sale of kidneys on eBay, using it as an example to explore market failures, equity concerns, and behavioral economics.
• 🌟 The course will explore the principles of capitalism, including the concept of the 'invisible hand', and how it can lead to both growth and inequality in society.
• 📚 The importance of understanding economic models at three levels - intuitive, graphical, and mathematical - is emphasized for a comprehensive grasp of the subject.

Q & A

What are the three main topics Jonathan Gruber wants to cover in his microeconomics course?

Jonathan Gruber wants to cover the course details, what microeconomics is, and start the substance of the course by discussing supply and demand.

What is the policy angle in the microeconomics course taught by Jonathan Gruber?

The policy angle in the course is focused on economic and government policy, which Gruber believes makes economics exciting and provides an interesting perspective on the subject matter.

Why does Jonathan Gruber encourage students to ask questions about what he writes on the board?

Gruber encourages students to ask questions because his handwriting is difficult to read, and he wants to ensure that everyone understands the content rather than relying on their neighbors.

What is the fundamental concept behind microeconomics according to Jonathan Gruber?

Microeconomics is fundamentally about how individuals and firms make decisions in a world of scarcity, involving constrained optimization exercises.

What is the 'opportunity cost' and why is it important in economics?

Opportunity cost is the cost of an alternative that is forgone to pursue a certain action. It is important in economics because it highlights the trade-offs involved in every decision, emphasizing that nothing is free.

Why does Jonathan Gruber refer to economics as the 'dismal science'?

Economics is referred to as the 'dismal science' because it emphasizes that there are always trade-offs and opportunity costs, meaning nothing is free and every action has a cost.

What is the water diamond paradox mentioned by Adam Smith, and what does it illustrate?

The water diamond paradox illustrates the concept of supply and demand. Despite water being essential for life and diamonds being less essential, water is generally cheaper than diamonds. This is because the supply of water is almost infinite, while the supply of diamonds is limited.

What is the purpose of the supply and demand model in economics?

The supply and demand model is used to explain the market equilibrium, where the quantity of a good that consumers are willing to buy at a certain price is equal to the quantity that producers are willing to supply at that price.

What is the distinction between positive and normative analysis in economics?

Positive analysis is the study of how things are, focusing on the actual outcomes of economic activities. Normative analysis, on the other hand, is the study of how things should be, involving value judgments and prescriptions for economic behavior.

How does Jonathan Gruber describe the role of the government in a capitalistic economy?

In a capitalistic economy, the government sets the 'rules of the road' to prevent fraud and misinformation, but largely allows firms and consumers to make their own decisions about production and consumption.

What are the potential problems with allowing the sale of kidneys on eBay, as discussed in the script?

Potential problems include market failures such as fraud, imperfect information, behavioral issues where people might not fully understand the consequences of their decisions, and equity concerns where only rich people might be able to afford kidneys.