Welcome!
Please sit in the first five rows.
It's not a big class. :)
Christopher Makler
Stanford University Department of Economics
Econ 51: Lecture 1
pollev.com/chrismakler
What is an economic issue you care deeply about?
Did what we studied in Econ 50 offer a good model for this issue?
No phones.
No tablets (except to take notes on with a stylus).
No laptops.
I'm not a monster. There will be a break in the middle of each class to connect with your digital world.
Part 1: Course Overview
Part 2: Review of Econ 50
Themes of the course
Course schedule
Grading policies
Good 1 - Good 2 Space
Budget Constraints
Preferences and Utility
Optimal Choice
Demand
Efficiency and Equity
Time
Information
Weeks 1-3
Efficiency and Equity
Weeks 8-9
Game Theory II: Asymmetric Information
Weeks 5-7
Game Theory I: Perfect Information
Thursday 4/25
Midterm
Wednesday 6/12,
12:15-3:15pm
Final Exam
Week 4
Externalities
Week 10
Public Goods and Public Choice
Monday
Reading and quiz for Tuesday's lecture
Thursday
Lecture; do second half of problem set exercises
Thursday & Friday
Section; office hours
Wednesday
Reading and quiz for Thursday's lecture
Tuesday
Lecture; do first half of problem set exercises
Weekend
Review material from the week
Do practice exam problems
Finish & hand in problem set
This course is not graded on a curve.
If everyone gets an A, everyone gets an A;
if everyone gets a B, everyone gets a B.
Reading quizzes: 5% of your grade
These are challenging, and I don't expect you to be perfect; 20% bonus given
In-class polls: 5% of your grade.
Graded for correctness, not just completion; but 20% added to your grade.
Homework: 20% of your grade.
Max 15 points per pset, max 100 points overall
Exams: 70% of your grade (30% midterm, 40% final exam)
If you miss the midterm, the final counts for all 70%. Don't do this if at all possible.
Most of you will get 100% (or close) on your quizzes, pollev, and homework;
your grade will largely be determined by the exams.
So, use the quizzes, lecture, and homework to prepare for the exams!
You must take final here in person unless you're traveling on Stanford business, or if you've started a summer job or internship.
If you have a summer job or internship, you are responsible for finding someone official to administer the test concurrently with the rest of the class. We need to know who that's going to be by Memorial Day (end of Week 8).
All content is posted/linked within Canvas.
Each lecture has its own module with everything you need to know about that lecture.
Please use Ed Discussions to ask questions (not email).
Please upload your homework to Gradescope by 8am the morning after it's due.
UCSD has video libraries for both intermediate micro and game theory...and they've let you have them for free! :) Information about how to sign up and which videos are most relevant will be posted on ED.
pollev.com/chrismakler
When did you take Econ 50?
How well do you remember it?
Two "Goods" : Good 1 and Good 2
Definition Review:
Indifference Curves
Preferred/Dispreferred Sets
Marginal Rate of Substitution
Indifference curve is
steeper than the budget line
Indifference curve is
flatter than the budget line
Moving to the right
along the budget line
would increase utility
Moving to the left
along the budget line
would increase utility
More willing to give up good 2
than the market requires
Less willing to give up good 2
than the market requires
POINT A
POINT B
IF...
THEN...
The consumer's utility function is "well behaved" -- smooth, strictly convex, and strictly monotonic
The indifference curves do not cross the axes
The budget line is a simple straight line
The optimal consumption bundle will be characterized by two equations:
More generally: the optimal bundle may be found using the Lagrange method
Otherwise, the optimal bundle may lie at a corner,
a kink in the indifference curve, or a kink in the budget line.
No matter what, you can use the "gravitational pull" argument!
(Gross) demand functions are mathematical expressions
of endogenous choices as a function of exogenous variables (prices, income).
For a Cobb-Douglas utility function of the form
The demand functions will be
That is, the consumer will spend fraction \(a/(a+b)\) of their income on good 1, and fraction \(b/(a+b)\) of their income on good 2.
This shortcut is very much worth memorizing! We'll use it a lot in the next few weeks in place of going through the whole optimization process.
pollev.com/chrismakler
Find the optimal bundle for the Cobb-Douglas utility function is
and the budget constraint is
1. Weighted average of some common
"one-good" utility function \(v(x)\):
2. "Quasilinear": one good enters linearly
(in this case \(x_2\)), another nonlinearly:
3. Perfect complements:
not used as often, but helpful
Cobb-Douglas (decreasing MRS)
Weak Substitutes (decreasing MRS)
Perfect Substitutes (constant MRS)
Concave (increasing MRS)
Be sure you've filled out the section survey.
Do the reading and the quiz -- due at 11:15am on Thursday!
Look over the summary notes for this class.