Question-and-answer session still on for Friday 12:00-2:00 in Bartlett
65.
I will try to answer any questions you
send me via email before 10PM on Sunday night.
If something comes up, like a train
wreck, that prevents you from making the final, call and leave a message
on my office phone as soon as possible.
Any after-the-fact excuse for missing the
final will require comprehensive documentation (as in, hire a lawyer...)
Every time I have ever given an exam at
8AM, someone has slept through it. Every time, that person has flunked
the course, largely as a result.
Today, I provide a review of the course,
describing
* how it all fits together
* common themes/concepts
* some key concepts from each chapter
with a focus on material from Chapters 9-13.
HOW IT ALL FITS TOGETHER
Remember the difference between the two
Beatles' songs: "Money, It's What I Want" and
"Money--Can't Buy Me Love"
this conveys a theme --pay attention to
self-interest, and to pecuniary incentives, but don't assume that's all there is to economic theory
The first half of this course (chapters
1-8) was about how, under certain conditions, individual pursuit of
self-interest in competitive markets leads to socially efficient (and
happy!) results for everyone. Long live the invisible hand. The second
half of this course was about how those conditions are by no means
certain: problems of monopoly, imperfect information, prisoner's
dilemmas, negative externalities, state regulation, nonrival and
nonexcludable goods and inequality itself create situations in which we
depend on values like trust, care, honesty, democracy and public
provision--we can think of these as the invisible heart.
putting the invisible hand together with
the invisible heart requires the intelligent mind
COMMON THEMES/CONCEPTS
scarcity--everything has a cost,
at least an opportunity cost. Because time is limited; because life is
always limited, and also because money is almost always, limited, at
least for most of us.
opportunity cost is what you
give up--your next best alternative--it is what you COULD have done;
or what you COULD have consumed, or what you COULD have earned, IF....
efficiency--everyone potentially
gains from an improvement in efficiency; leave no "cash" on
the table; leave no opportunity for improvement unrealized; Pareto
optimality is defined as a situation where you can't make anyone
better off without making someone else worse off. This is just a fancy
way of describing efficiency. Efficiency is almost always achieved at
the point where the marginal benefit of doing something equals its
marginal cost--this follows from the fact that marginal cost curves
almost always curve upward eventually and marginal benefit curves
almost always curve downward eventually. The shape of these curve
derives in both cases from the law of diminishing returns. You should
apply this insight to the way you organize your study time.
equilibrium--the place toward
which many things tend, and the place where they come to rest....where
quantity demanded equals quantity supplied, or in game theory, where
everyone is making their best choice given what others have chosen
incentives--pay attention to how
economic institutions reward--or fail to reward--individual
decisions....because if we are going to survive as a species, we need
to figure out how to reward good behavior and discourage bad behavior.
Competitive markets provide good incentives under some conditions
(e.g. chapters 1-8) but not always in others (chapters 9-16)
List of topics that I'm going over in
class:
supply, demand, equilibrium price,
interference with market equilibrium
consumers' and producers' surplus
production possibilities curves
various ways of calculating elasticity
comparative and absolute advantage
gains from trade
imperfect competition
profit maximizing conditions (where
marginal cost equals marginal benefit)
differences between perfect and
imperfect competition
present value
accounting profit vs. economic profit
natural monopolies
dead weight losses
economies of scale
dominant strategies, Nash equilibrium,
Prisoner's Dilemma
expected value of a gamble
information costs
asymmetric information
lemons
health care--what's wrong with
incentives
positive and negative externalities
environmental regulation--pollution
permits
nonrival and nonexcludable and public
goods
human capital theory
winner take all markets
value of marginal product
income and wealth inequality
|