This introductory microeconomics lecture establishes the course's focus on understanding how individuals and firms make optimal decisions in the face of scarcity, emphasizing the role of trade-offs and opportunity costs, and introducing economic models as tools for policy analysis.
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um let's get started this is uh
1401 uh microeconomics uh the uh and um
I'm professor John
Gruber now couple notes about the course
uh there's a distinct policy angle to
this course um I think personally what
makes economics most exciting is it can
you you can use it to think
intelligently about the problems that
policy makers face every day as they try
to decide how to make the economy work
the best for its citizens um in fact I
teach a whole course about this called
1441 uh but I'm going to bring some of
those insights into this class and use
policy based examples and things like
that to try to motivate uh and organize
our thinking about
economics um lastly uh three points
about my teaching style first of all I
don't write everything on the board uh
for the Freshman here we're not in high
schoool anymore you need to pay
attention and listen to what I say not
just what I write um so it's important
to remember that um uh uh the second
point is as you can tell I talk really
fast and my handwriting is really bad
okay so please please don't be afraid to
ask what the hell I just said or wrote
okay there is if you don't know chances
are at least 40% of the class doesn't
know either we'll learn later this
semester about the con a public good a
public good is something you do which
has a personal cost and a social benefit
I understand raising your raising your
hand in a class as large as this can be
intimidating but remember in doing so
you're not just helping yourself you're
helping your fellow classmates so please
don't lean and Whisper loudly what the
hell did you just say to the person next
to you raise your hand and ask me
because if you didn't understand many
other people didn't as well more
generally it's hard to get class
participation in a class this large but
I really encourage people to participate
as much as
possible I've never had a year in this
class where there's been too much
participation I've had every single year
too little participation so please
follow up with questions uh things like
that and then finally the third point
about my teaching style is I have a bad
tendency to use the term guys in a
gender neutral sense so when I say guys
I don't mean men I mean economic agents
people everyone and I'm sorry guys has a
gendered word often I don't mean it that
way it's just kind of a economist talk
for for economic agents we call them
guys what we're going to do today is
talk about what is microeconomics what
are you going to learn in this course
what is the basic field about and then
we'll dive in next time into actually
starting to learn about the models that
make up basic
microeconomics um
microeconomics is fundamentally in a
sentence the study of how individuals
and firms make themselves as well off as
possible in a world of scarcity it's how
individuals and firms make themselves as
well off as possible in a world of
scarcity scarcity is key the core of
microeconomics is constrained
optimization basically individuals or
firms assessing the tradeoffs they face
every day in the decisions they make and
then trying to decide the best decision
given those
tradeoffs so that is microeconomics is
really about trade-offs mic economics is
really about you can't have it all so
what are you going to do with what you
can have how are you best going to use
your limited
resources and the key concept behind all
this the sort of probably the I'm going
to say about 100 times this is one of
the most important Concepts in economics
I'm sorry about that but this is really
one of the most important Concepts in
cost opportunity cost
okay and opportunity cost is the notion
that every
action or in action has cost in terms of
what you could have done instead in
terms of the next best
opportunity if you buy a shirt you are
forgoing spending that money on buying
something else so if you're deciding
between shirts and pants you buy the
shirt you're for going buying the pair of
of
pants if you
study if you spend all night studying
you're forg going the opportunity to go
see a band you like in concert and vice
versa every action you take is a
trade-off every decision you make
involves a trade-off because there's
always an opportunity cost there's
always something you could have done instead
yeah great question um actually let me
come back to that in one minute I want
to come back to that or five minutes um
okay so this is why economics is called
the Dismal science we're called the
Dismal science because the role of the
economist is to basically say well you
think that's free but it's not you think
you can just relax and watch TV but you
know by watching TV you're giving up the
opportunity to study the opportunity to
go out see a concert or the opportunity
to do something else okay so that's why
they call disal science now some people
may call dismal I call it fun and maybe
that's because I was an MIT
undergraduate and what is an engineering
school but the land of constrainted
optimization that's what engineering and
science is it's all about what
engineering is tra and optimization what
better example could there be in the
two7 contests you're given a set of
materials and asked to build something
that's a constrained optimization
exercise indeed economics was invented
modern economics invented at MIT by The
Economist Paul Samuelson who essentially
said the mathematics that science
Engineers use can be applied to analyze
really the sort of essay likee approach
that people had taken economics before
him so he basically brought the tools of
science to economics and basically
developed the course I'll teach today
and the course that's taught all over
the world was developed right here at
MIT modern economics was born here
because we introduced the tools of constraint
constraint
optimization now oh over here I'm
usually going to try to do like an
outline of what we're covering so we
talked about course details what is
micro just did now let's talk about how
we do that what economics does which is
we use models and I'm talk about a model
demand how do we actually teach you all
about these tradeoffs
okay the way we do it is by building
simplified models okay what is a Model A
model is technically the description of
any relationship between two or more
variables is a
model um now but unlike explaining
relationship between energy and mass we
do not have scientific laws and
constants in our universe okay economics
is as much as we hate to say it not a
real science it is a social science
which means that basically we don't have
rigid laws that we can write down say
they're all they're everywhere
applicable okay we we have to use models
to basically try to explain the world as
much as we can and so in doing so we
have to make a set of simplifying
assumptions a set of simplifying
assumptions to try to essentially trade
off two
goals one goal is to explain as much as
we can the other goal is to have
parsimonious models that I can teach
you okay the more complicated the model
gets the harder it is to teach the
harder it is to solve this comes to the
earlier question about are you really
just trading off two goods well of
course you're never just trading off two
goods but we're going to write our
models like you are and it's going to
turn out that gives you all the
intuition you need for a model with this
three or four Goods it's just a lot
easier math so it turns out everything
you learn in the model with two goods
tells you everything you need to know
for a model with n Goods just with
easier math so that's the kind of
simplifying assumption that's a
fairly um uh that's a fairly uh
non-offensive simplifying assumption
think it doesn't really change anything
we'll make other simplifying assumptions
which are noxious and offensive and
we'll talk about those and if you are
offended by them and bothered and want
to see what happens without those
assumptions then that's exactly why you
should be economics major because that's
we go on and do in the rest of the
classes say okay now let's move on from
these simplified models add some
richness and see what it does to the
world okay uh the statistician George
box uh once wrote that all models are
wrong but some are useful okay okay and
that's exactly what we're going to try
to work with today okay when I teach you
economics I'm going to try to teach it
to you on three levels okay the first is
word MIT is
mathematical the second is graphical and
the third is
intuitive really if you want to succeed
in this class you need to understand all
three now not every model will I use all
three but you want to understand all
three of those Concepts to really
understand the material we're learning
here and and we'll start with the model
of supply and demand the very first
economic model developed by Adam Smith
in 1776 in the book that was sort of the
founding of Economics The Wealth of
Nations Adam Smith asked the question um
think about two goods think about water
and think about
diamonds okay nothing is more essential
for life than water we cannot function
without it nothing is probably less
essential for life than diamonds
especially back then when diamonds
didn't have industrial uses they were just
just
bobbles okay water is clearly just
essential diamonds aren't yet the price
of diamonds is very high and water is
essentially free he asked how could this
be and the answer is because what I've
just described is only one half of the
model of where we get the price of water
or diamonds I've described the
demand I've describe the demand for
water and diamonds I've said the demand
for water is much much larger than the
demand for diamonds
what I haven't talked about is the
supply which is the supply of water is
even more Rel the supply of diamonds
water is everywhere diamonds are rare to
find and what Adam Smith said is that
while the demand for diamonds may not be
as high as the demand for water the
supply of diamonds is much much smaller
than the supply of water and that is why
you could end up with a good that's
inherently less valuable to life having
a higher price
okay and Smith's point is you can't just
think of supply and demand and isolation
you need to think of them uh together um
is uh oh Pedro could you grab me a copy
of the handout fix um okay so that's
sort of the
intuition that's the intuition Spider
Man model now let's talk about the
graphics and the math okay so now let's
talk about an example of a supply demand
model and let's focus on the market for roses
roses
what is a market a Market's what it
sounds like it's buyers and sellers
coming together are there any more any
extra handouts around is everyone have
one everyone have a
handout okay good that's fine then okay
let's talk about the the markets for D
let's talk about the market for Roses
okay first of all what is a market a
market is think of a market to start
yeah like another page right the hand
print what's that is there any is there
an extra pile sitting around there of
handouts we got some extras there okay
pass those around make sure you know
pass those around and
uh yeah next time they'll be in the back
so please you know raise your hand if
you don't have a hand out and let's try
to pass those around okay pedri can you
grab one for me
um okay so basically let's think about
the market for Roses what is a market a
market is a place where buyers and
sellers come together to make
transactions okay think of it like the
old timey markets of ancient England
were literally the only way to transact
was physically being in the same
place where the buyers and sellers would
come to Market once a week and the
people bring their cows and people who
wanted milk would come in or meat would
come in and they would transact think of
the market that way now of course that's
not how the modern Market works but
that's the way we want you to
intuitively think of a market it's
literally a place where buyers and sells are
are
interacting and it turns out that
intuition will work even even given the modern
modern
economy okay so now who else doesn't
have handouts everyone got the
graphs okay all right so um now let's
talk about the market for roses in
figure 11 one we have the market for
Roses okay on the xaxis the horizontal
we have the quantity of roses I'm going
to by the way try to have handouts for
all the graphs because my handwriting is
so brutal so uh uh you shouldn't have to
see hopefully if all goes well the sem
you should never see me draw a graph on
the board um so uh on the x-axis with
the quantity of roses on the y axis we
have the price of
roses okay um the demand curve
represents the relationship between
price and quantity from the consumer's
perspective so the domain curve in this
this case is represented by the
equation Q equals
P okay now you're immediately say well
what where's 1800 400 come from it
doesn't matter right now that's what
we're going to teach you in the next few
lectures right now that's just that's an
equation that represents a line and it's
the critical aspect of that equation is
that there's a negative
relationship between
price and quantity as price goes up
consumers want fewer
roses why is that well it's just because
of opportunity cost the more expensive
is a rose the more you have to give up
to buy it so its opportunity cost is
higher so you want it
less okay so the higher is the price the
fewer roses you want so we get a
downward sloping demand curve the blue line
line
now the supply curve represents the same
relationship between price and quantity
but from the supplier's
perspective a supply curve in this case
that we've drawn here has the equation
200p 200p you'll see here there is a
positive relationship between price and
quantity that is supply curve is upward
sloping as price goes up firms will prod
firms will produce more roses why once
again opportunity
cost with a low price producing a rose
means you can't use that farm to produce something
something
else if the price of Rose is low you're
going to use the farm for something else
the price of roses is high you will then
use that far to produce roses because
that is a better choice than the next best
best
alternative so once again this concept
of opportunity has already helped
explain the basic model of Economics the
single most important model of Economics
is represented in this graph and you can
understand it just by the concept of
opportunity cost that is why we are such
a powerful social science that's why all
the other social sciences are [ __ ]
jealous of us okay because we can use
Simple tools to explain much to explain
much of the world and here's a perfect
example okay now we call the point where
those two curves meet the
equilibrium the point where supply and
demand are in agreement is the
equilibrium that is the point at which
suppliers are willing to sell roses at
the same price consumers are willing to
pay for them so with 600 roses 600 box
of roses or whatever it is the the
equilibrium price is $3 well it's a row
so with 600 rows the equili price is $3
that is both parties are happy in
equilibrium the key point about
equilibrium as the name
implies as the term equilibrium implies
it's the point where the system has come
to rest where both parties are happy
with the outcome both parties are happy
because it's on the demand and supply
curve since it's on the demand curve
consumers are willing to pay $3 for 600
roses they wouldn't pay $4 600 roses but
they pay three since it's on the supply
curve suppliers are willing to accept
$3600 roses they wouldn't accept $2600
roses but they'll accept $3 because it's
on the Curve
so basically it's just two equations and
two unknowns you set these two things
equal to each other and you solve and
you get
qar equals uh qar equals
600 and P star equals three just by two
equations and two unknowns once again
why we only have two goods I could have
done this in three dimensions the graph
would have been uglier the math would
have been harder but nothing would have
oh that's a great question basically they
they
are it's a good question we write down
the function are basically invertible
and we use them both ways is the bottom
line it doesn't we're really writing
down equili relation between q and P it
doesn't really matter what X and Y is
we're really just writing down an equili
relationship it's just the convention is
to put Q on the xaxis even though the
con even though the convention will
sometimes right toand curs was p on the
left hand side the graphic convention
will never change but how you write the
curves might change how we write the
equations might change
yeah use opportunity cost to justify why
demand down sloping great question okay
let's go through it that's exactly kind
of question I want to hear the semester
the reason demand is to someone take a
crack at
it any anyone to explain yeah and speak
up if the price is higher in order to
get that Rose you had to give up more
because the price represents like your
opportunity right PR the opportunity
cost of any good in the free market is its
its
price so as the as the price goes up the
opportunity cost goes up why because
there's more other stuff you could have
bought so if it's three bucks a row you
could have bought you know a slice of
pizza and a Coke but if four Buck if
it's if it's four bucks a rose you uh
four bucks a rose you don't have enough
money left to buy both the Coke and the
and the slice of pizza so and but that's
a great question because that's exactly
where we're going to go next is the next
three lectures are going to tell you
where this equation comes from we're
going to start with the basic principles
of people's preferences really almost
philosophical and we're going to derive this
this
curve then after that the next five
lectures will be deriving this curve
we'll start with the basic principles of
how firms make decisions and we'll
well it depends on on what I've written
on the axis you're right this is this is
confusing pedri should make a note we
should probably make this clearer next
time we should have called this number
of roses or shouldn't have been called
quantity of roses that's a great point
we should call this number of roses or
boxes of roses but it's per a quantity
that's specified in the model great
question thinking with MIT you cannot
get away with with sloppiness here I
love it Harvard what the hell you write
whatever you want yeah
yeah
usually great question in indeed uh this
is another cheat we'll do which we'll
often write down nonlinear
representations but draw them
linearly um this is a linear
representation but sometimes we'll have
nonlinear curves and draw them linearly
when we do think of it as a local
approximation think of the linear piece
function okay great questions I love it
okay now this raises this model raises a
very important distinction that we're
going to focus on the semester it's
going to trip you up I guarantee a
number of times so I want you to very
careful thinking about this which is the
distinction between positive
positive
economics positive economics is the
study of the way things
are while normative economics is the
study of the way things should be okay
positive economics study the way things
are normative economics to study the way
things should be
okay now to consider to understand this
let's consider a great example of
Economics at work which is eBay okay
when eBay came along okay I know it is
older than all of you but it's younger
than me when eBay came along economists
are very excited because economists love
auctions auctions are if you will The
Standard Market that used to exist in
you know 15th century England okay it's
literally people beating against each
other in a way that reveals who wants
the good the most and what's wonderful
about that and we'll come back to this
throughout the semester is it has two
great features one is it makes sure the
right amount gets produced and two is it
makes sure the people who want it the
most get it one beautiful feature of
free markets is that they don't just get
you to the right aggregate quantity they
also get the get the goods in the hands
of people who are willing to pay the
most for them and that's what what eBay
did now one auction eBay got a lot of
example got a lot of attention I'm sorry
got a lot of attention which is that
somebody put their kidney for auction on
eBay they auctioned their kidney they
said I'll give you my kidney for let the
bidding started
$225,000 the bidding got up to $5
million before eBay shut it down and
said no auctioning human body parts on eBay
eBay
okay now I don't know why they stopped
at five million out earlier but whatever
okay so we can with this example we can
ask both a positive and a normative
question the positive question is why
did the price get so high
and here we only need AAL to supply demand
demand
model the demand for a kidney is going
to be pretty high if you need a kidney
to live you're going to pay
approximately everything you have to get
it the supply of kidneys on the free
market is pretty low like that was the
only one I know of okay so it's a
classic case with a very high demand and
a very low Supply you're going to get a
very high price and so it's not
surprising the price went up and
probably would have gone up further if
eBay hadn't shut it
down but but now we come to the
normative question which is more
interesting and
harder which is um should we be allowed
to sell our bodily organs on eBay okay
you might think that this is a question
here in philosophy class but
fundamentally it's an economics
question okay many folks die in America
because though because we do not have
enough organs to help those with organ
failure we we have a limited supply of
organs I hope you all are organ donors
on your driver to licenses doesn't cost
you anything you're gone in anyway and
it can save a
life um but um many people don't do that
and uh even if they did we're just we
have a higher demand for organs than we
can fit now if someone who wants an
organ is wealthy and willing to pay a
lot of money for
it and there's someone else who says
look I got two kidneys you can function
just fine with one the oddy of kidney
failure is really low someone says look
I am desperate Straits I can't feed my
family I can't house my
family I could sell one kidney still
function fine and change my life forever
educate my children build a house do the
things I need to do why shouldn't we let
that happen so standard economics would
say great let them auction their body
parts but in fact there's reasons why we
don't think many there's many reasons
why that may not a good outcome what are
those what are reasons we might not want
to just say sure let a
ahead yeah so there's fundamentally two
kinds of reasons the first kind is what
failures market failures are something
we're not going to cover for about the
first 11 lectures for the first 11
lectures the free market is going to be
king let me be very clear with you
economics is fundamentally a right-wing
science okay as we'll come clear through
the semester I'm kind of a leftwing guy
but economics is pretty much a
right-wing science in basic economics
says the market knows
best and the and there's only two
reasons why you should ever interfere
with with the market and the first is
because for some reason the Market's not
working properly this is an example we
it would be fine if everyone
knowledgeably went into this
transaction but what if this turns out
this can cause people to like force
force their children to give up their
kidney or do things against their will
other criminal activities um what if
people don't really understand how
dangerous it is to give your kidney
there's 50,000 Americans every year
there's now currently about 100,000
Americans living with hepatitis C which
causes kidney failure he C can live
dormant for years before you know you
have it what if you give up your kidney
find hepatitis C then you're dead so
there's lots of reasons why I think well
maybe this Market doesn't work quite as
well as economists say it does people
might be misinformed people might be F
people might be forced to do it what's
interesting is the black market is not
necessarily one of those reasons and
here's why because the black market
economists just say is a market let's
say eBay doesn't allow you to sell your
kidneys so you have to sell it on the
black market well if there's no other
market failures that's okay for the same
reason economists think it'd be okay to
sell your body parts there's no reason
why I tell your body parts on a form
Market informal Market the only reason
why it would be bad would that informal
Market comes with other unsavory
features like forcing people to sell
their body parts or not being informed
that's what it be bad okay what other
reasons might we care might be worried
about people selling the kidneys yeah
why T shouldn't the
back it would mean that only like really
rich people
great great answers guys the second
reason we care is what we call Equity or
fairness which is we might not think
it's fair that rich people get to live
and poor get to live longer and buy the
organs and poor people
don't okay we might think this is that
that this is an unfair
outcome now this is what's fascinating
about America which is even though we
pride ourselves on being the land of the
market economy we also care a lot about
fairness as a nation and this is viewed
by many as being complately unfair that
the Richer you are the more you can just
buy part body parts off poor
people now here's what's a little bit
sad about this class and the sad about
the limitation of only having you know
the number of weeks we have which is I'm
not going to talk nearly as much about
Equity as I'd like to 90% of this course
is going to be about efficiency it's
going to be about does the market work
does the market deliver the right
quantity of goods it's not about equity
which is well does that right quantity
end up going end up causing huge
inequality in
Society so that is kind of another
reason why we might care okay and we
will discuss Equity leing the semester
but unfortunately not to much later all
that okay let me finally talk about one
last thing which sort of seems like you
got to talk about in the first lecture
of of an economics class which is what
about the underlying structure of the
economy how do we think about different
models of how economies function and the
fundamental conflict is between a capitalist
model the capitalist model in its purest
form What's called the LA fair or let it
be uh model is one where individuals
decide what to produce and consume with
no interference it's a purely free
market okay it's the market that sort of
existed 500 years ago before we had sort
of the truth is it never existed there's
no such thing we will do a lot of
teaching by Extremes in this course
we'll talk about extremes it's a great
learning device but there's no never
been such as a purely capitalistic
economy most economies like the US are
Market driven but government and
socially constrained what does that mean
that means yes we let GM decide how many
cars to produce but we have standards on
what emissions those cars can have and
how safe they have to be in a purely
capitalist economy GM could produce the
most dangerous cars they wanted no one
would care and they could be smog Laden
and no one would care obviously we don't
have that in America we have regulations
we have taxes on gas we have rules on
what you can learn and where you can
learn it Etc so we have what we call a
sort of constrained capitalist economy
where fundamentally the decisions on
what to produce and what to consume are
made by individuals within a set of
rules set up by the government and some
also set up by social
norms okay now the opposite extreme is
what we call a command economy and we
actually had almost the closest model
that could exist to this which was the
Soviet Union of my youth the Soviet
Union of my youth it's typically
associated with Communism although it
doesn't have to be command economies
don't have to be associated with
Communism Germany in World War II was a
command economy in the service of
fascism it's typically associated with
Communism is what we call a command
economy in in that extreme the
government makes all production
allocation decisions people don't decide
what they get the government decides
what they get so it's the other extreme
there's no free
transactions it's the government making
all the rules not just about how much
should be produced but who gets what's
produced okay so in the free market the
market subject set of government sort of
you guys have bowled there's like the
bumpers you can up when you're little
kid and you bowl and they keep the ball
on that bowling lane so think of the
government you know in a capital economy
is those sort of those those those uh
guides on the side that help keep the
ball in the lane but but you get to
throw the ball on decide what if you're
going to which pin you're going to go
for in in command economy they literally
they tell you go to the end of Lane and
knock down pin seven okay uh it's a very
it's a very different
model now in
theory the argument for the command
model is that it can ensure that the
right Goods get produced and distributed
as fairly as possible the idea this the
theory is quite simple it goes back to
KL marks the theory makes a lot of sense
which is look the government's job is to
make sure society's as well off as
possible it does that by making sure the
right things get produced and get to the
right people and we can't trust the
market to do that only the government
can do that okay this is a great
argument in theory in practice it
doesn't work and it doesn't work for two
reasons it first of all it's just too
damn hard to make all those
decisions any government no matter how
large and how benevolent cannot make the
enormous massive quantity of billions
and billions of decisions that need to
be made think about every good we
consume in America a government deciding
how much of it to make and literally who
gets it okay it's overwhelming
governments can't do it so that led to
things like in East Germany I was in
East Germany a year ago and I went to
went to the Museum of East Germany and
uh they talk about how in in back in
communist days in East Germany uh no one
had cars but they had so much bread they
would feed bread to their pigs for food
okay because the government sort of
screwed up and decided you know
commanded too many too much bread and
too few cars okay that's natural it's
going to happen it's just too hard okay
the second problem is that human nature
being what it is a command economy
inevita leads to massive corruption
because when a handful of people are in
charge of deciding everything of course
they're going to make their lives the best
best
first so I'm not saying there's not
corruption in capitalist economies but
it's sort of inherent in a command
economy it's inherent because you're
giving a set of people the power to
decide who gets what and it's inevitably
in human nature they'll decide to give
themselves the most and
first so that is why really why the
Soviet Union collapsed because the
command economy simply couldn't get it
done and let's be clear it did not
appear inevitable in the
1950s there was huge Envy in the US of
what the Soviet Union was accomplishing
they came out of a devastating war and
built a manufacturing base that was the
Envy of the entire world even the US
almost overnight it was incredible
and a lot of people questioned whether
that might after all not be the right
model it just it turns out over about 30
years it fell apart because it just wasn't
wasn't
sustainable now the alternative of
course is the uh US economy the capital
economy which operates by what the
famous the father of economics Adam
Smith calls the Invisible Hand the
notion invisible hand is you don't need
a government to make all these decisions
because the market makes it for you the
Invisible Hand of the market decides how
much you get produced and who should get
it not through any one person making
decisions but just through people coming
together in a market and working
together to make those decisions and
that's what we'll teach you this
semester how the market works and how
those that invisible hand can lead
through the magic of the market to the
right Goods being produced and getting
in the hands of the right people okay so
that's a huge advantage and it's worked
America is the richest nation in the
world we've grown rapidly for centuries
now um and we are um and and we're very
successful on the other hand it leads to tremendous
tremendous
inequality because the way the right
person to have the good is the person
who can pay the most for it right in the
command economy the right person have
the good corruption aside is who needs
it the
most we take our kidney example the
command economy would say well let's
find the person close to death and give
them the kidney the capital econ say
let's find the person willing to pay the
most to give them the kidney well that's
unfair and that is an inevitable outcome
of a capitalist economy America is the
most unequal major nation in the world
World our inequality dwarfs what we see
in other countries around the world the
top 1% of Americans control 25% of all
the income in the US which is which is
at least 5% higher than any other major
nation in the world okay so we have
large inequality because basically the
Mark it's inevitable in a market that'll
happen because people who want to pay
the most get the
stuff okay so that gives you the
tradeoff the consensus I would say among
virtually every Economist is that a
command economy is not the way to go the
debate is within the capitalist
model how far the government should
intervene if you look at countries like
Europe they have a much more intervenous
Economist you'll Europe countries being
called socialist they're not socialist
socialist means the government controls
the industry socialist would be there
still consumers don't going decide what
to buy but the government produces
everything the government runs the banks
the government runs the airplanes the
government decides how much steel to
produce the government so in substance a
socialist is sort of halfway between
capitalist and command economy where the
government does the production but
Market forces decide the
allocation that's not true in any other
major country in the world okay these
countries are all different levels of
constrained capitalist economies they're
all different width of those bowling
alleys okay in Europe and many European
nations they have much more constrained
capitalist economies much higher taxes
much more government prevention also
much more equal and we'll be talking
about this semester and what I focus on
much more in my course 1441 is how do we
think about those
trade-offs between a Freer economy which
is larger but leads to more inequality
than the US and a less free economy with less
less
inequality okay so to guide you to where
we're going to go I'm really big on sort
of making sure you have a big picture of
where we are in this class and once
again if you're confused not just about
the little picture but the big picture
let's talk I do urge people come talk to
me I generally my rule is if it's like a
question about a problem set go see the
Tas if it's a question about like I
don't understand a concept or I want to
talk about economics in general or life
in general or music or whatever then
come see me okay and I really do urge
you folks to come come see me uh now
that I'm chair going I have to be around
all the time so I'm around plenty of
time please just make an appointment and
come see me so where we're going to go
from here what we're going to do like I
said is the next few lectures we're
going to map out what makes a demand
curve then we're going to map out what
makes a supply curve then we're going to
put them together and talk about
basically in some sense come back to
where we started but now with an
understanding of what demand and Supply
mean and why the equilibrium makes sense
we'll then talk about we'll then turn to
normative economics and talk about why
the market equilibrium is really the best
best
outcome we're then going to start to
talk about where the standard so it's
been about the first I would say half of
the class on the standard economic model
the second half of the class will be
focused on where the standard model
breaks down
what happens when there's monopolies
like Google effectively a monopoly on
search engines what happens when we want
to trade with other countries what
happens when we have to decide how much
to save and how hard to work what
happens when we have to decide um where
to invest and what to do about global
warming these are all the questions
we'll tackle in the second half of the
class okay so let me stop there and I
hope I'll be seeing you all uh every
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