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, non-rival and non-excludable 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)

Key concepts from each chapter: 

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

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

non-rival and non-excludable and public goods

human capital theory

winner take all markets

value of marginal product

income and wealth inequality
 

(You really had to be there..........)