Microeconomics 2

John Hey

Lecture 1: plan for today

• Tutorials and teaching fellows.

• This lecture is about organisation and motivation.

• Who is John Hey?• Web site. (TFs and reps.) VLE.

• Introduction to module.

• What it is trying to achieve.

• Lectures.

• Assessment.

• Advised study method.

First a word about the module as a whole

• Autumn Term – taught by me – lectures 1 to 19 excluding lecture 17 – built on my text and my website.

• Spring Term – taught by Alan Krause.

• Examination will have two parts corresponding to the two terms. The exam on my part will be like the exam I have set in the past. All information is on the site.

Teaching Fellows/Tutors are Daniel Howdon, James Lomas, and Dominic Spengler.

Teaching fellows and tutorials

• TFs will have office hours each week – between them one hour a day each week.

• Tutorials are in Weeks 4, 6, 8 and 10 of term 1.

• Some of them may be before the relevant lectures; and this will help you to anticipate some of the lectures.

• Tutorials are a mixture of things; they are not mathematical exercises.

• Prepare for them in advance (as it tells you).

• Actively participate in the tutorials – don’t be a free-rider.

• After the tutorial do what it tells you to do, and hand in to your tutor if asked.

Tutorials Autumn Term

• Autumn Term Week 4: Tutorial 1: An allocation problem.

• Autumn Term Week 6: Tutorial 2: Demand.

• Autumn Term Week 8: Tutorial 3: Exchange.

• Autumn Term Week 10: Tutorial 5: Production possibility frontiers.

• (Tutorial 4, which you can find on this site, will not be covered this year.)

General comments about the module

• Read the introduction section on the VLE.• It is to get you thinking like economists...

• We understand indifference (human beings don’t)

• We know that “Everything in life is a trade off.”• Do not try and memorise things.• Try to understand concepts and ways of

thinking. Develop economic intuition.• Not mathematics (though it is there if you want/like it).

• Not memorisation.

What do (micro) economists do?

• They want to explain and predict economic behaviour; but crucially predict.

• To predict we first need to explain.

• To explain we need models to give structure.

• Why? Because we explain using past data. There is a lot of such data; we need to decide which to use. That is the role of theory.

• Theory assumes that people are rational. What does that mean?

Web site

• Everything that you need (and more) is there (including me and the module representatives).

• Powerpoint presentations (constantly revised). One for each chapter/lecture.

• Lectures in html format. One for each chapter/lecture.

• Lectures in Maple format (only for the afficionados).

• Tutorials. (Later ‘answers’.)

• But what about VLE?

Lectures

• They are on the site – both powerpoint overviews and the detailed html files.

• Smell both before the lecture.

• Come to the lecture and participate.

• Read both immediately after the lecture.

• Read the corresponding chapter in the module text: Intermediate Microeconomics: People are Different. This is obtainable in the Campus bookshop, £25.

The book: a bit of history

• I have taught Micro 2 for a long time – both in the UK and in Italy.

• I used to use Varian – he has an artist.

• I evolved my own course. I wrote the book.

• I (well Maple actually) drew the pictures…

• … they are accurate and are based on particular preferences/technology.

• Why the subtitle “People are Different”?

Part 1: Economies without production

• 1: Introduction

• 2: Gains from Trade

• 3: Discrete Goods: Reservation Prices, Demand,Supply, and Surpluses

• 4: Continuous Goods: Reservation Prices, Demand and Supply, and Surpluses

• 5: Preferences

• 7: Demand with Money Income

• 6: Demand and Supply with Income in the Form of Endowments

• 8: Exchange

• 9: Welfare

Part 2: Economies with production

• 10: Firms and Technology

• 11: Cost Minimisation and the Demand for Factors of Production

• 12: Cost Curves

• 13: Firm Supply and the Surplus of the Firm

• 14: Production Possibility Frontiers

• 15: Production and Exchange

Interlude

• 16: Empirical Analysis of Demand, Supply and Surpluses

Part 3: Applications and implications of the basic tools not taught by me this year except for chapters 18 and 19

• 17: Aggregation• 18: Revealed Preference and Revealed Technology• 19: Compensating and Equivalent Variations• 20: Intertemporal Choice• 21: The Discounted Utility Model• 22: Exchange in Capital Markets• 23: Choice under Risk• 24: Expected Utility Model• 25: Exchange in Capital Markets• 26: The Labour Market

Part 4: Market inefficiencies of various types not taught by me this year

• 27: Taxation

• 28: Monopoly and Monopsony

• 29: Natural Monopoly and Discrimination

• 30: Game Theory

• 31: Duopoly

• 32: Externalities

• 33: Public Goods

• 34: Asymmetric Information

Office hours and the Discussion Board within VLE

• Office hours will be on the Module website.

• However we feel that use should be made of the Discussion Board within VLE.

• In principle it is more efficient...

• ... and we, as economists, are interested in efficiency.

Assessment of the Autumn Term material

• The examination will be different from those before 2011-2012.

• The examination will be set and marked by the computer.

• The examination has been strengthened relative to 2011-2012

• There will almost certainly be a question on each lecture/chapter covered by me. So study them all!

• You will be penalised for wrong answers.• There are two specimen papers on the site. We will go

through them in two lectures later in the year.

Advised study method

• (See also what I have said about lectures.)

• You learn economics by doing economics.

• So the tutorials are crucial, though they are (obviously) not a direct preparation for the examination. We will do that later.

• There are also Review Questions in the book.

• Form study groups of you and your friends and work through things together.

• Use your tutor, the student reps and me to resolve any issues.

Preparation for Lecture 2

• Review definition of a Reservation Price for a buyer and for a seller.

• To keep it simple, suppose the good is discrete and the buyer/seller wants to buy/sell at most one unit.

• Reservation price is maximum/minimum that the buyer/seller would pay/accept.

• Profit/Surplus if buyer/seller buys/sells at price below/above reservation price?

Conclusions

• Come to all the lectures.

• Smell the lectures before the lecture and read them again afterwards.

• Prepare for the tutorials, participate in them actively, and review them afterwards.

• Form study groups; learn together.

• Study constantly throughout the year.

• Study, learn and enjoy.