Christopher Makler
Stanford University Department of Economics
Econ 51: Lecture 1
Part 1: Course Overview
Part 2: Review of Econ 50
Who is the Econ 51 teaching team?
What is this course about?
When will we study each topic?
Why is this class important?
How do we all succeed?
Good 1 - Good 2 Space
Budget Constraints
Preferences and Utility
Optimal Choice
Demand
Econ Department Peer Advising
VPTL Peer Tutoring
Efficiency and Equity
Time
Information
Weeks 1-4
Efficiency and Equity in an Exchange Economy
Thursday 11/17
Exam on Unit II
Weeks 8-10
Asymmetric Information; Public Economics
Weeks 5-7
Game Theory and Imperfect Competition
Thursday 10/20
Exam on Unit I
Friday 12/16,
12:15-3:15pm
Final Exam (mostly on Units II and III)
Exams are worth 65% of your grade. Due to multiple honor code violations during COVID, we are not giving students exams to take in isolation: if you miss an exam, for whatever reason, you miss the exam. We are having 3 exams to make it so that missing one exam is less of a big deal.
If you take all 3 exams:
lower midterm score is 10% of your grade
higher midterm score is 20% of your grade
final exam is 35% of your grade
If you miss one of the midterms:
the remaining midterm counts is 25% of your grade
final exam is 40% of your grade
If you miss both midterms, you must withdraw from the class (second midterm is week 8)
If you take at least one midterm but miss the final: you will automatically get an Incomplete.
We will work to resolve Incompletes as quickly as possible.
Thursday, November 17
Midterm 2
Thursday, October 20
Midterm 1
Fri, December 16
Final Exam
12:15pm
THESE ARE THE EXAM DATES.
DO NOT SCHEDULE VOLUNTARY TRAVEL THAT FORCES YOU TO MISS AN EXAM!!!
PUT THEM IN YOUR CALENDAR.
Important?
Explained by Econ 50?
Key aspects
Trade is mutually beneficial.
Germany and Russia are
in a strategic conflict.
[Unit 1]
[Unit 2]
Germany, the EU, and the US want to incentivize Russia to end the war.
[Unit 3]
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.
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.
Grade cutoffs are given on the syllabus (90-100 = A, 80-89 = A-, etc.)
Reading quizzes: 5% of your grade. One for each lecture; lowest 4 dropped.
In-class polls: 5% of your grade. Graded for completion, not correctness; so low stakes!
However, misrepresenting your presence will result in a grade of 0 for the quarter.
Please go to pollev.com/chrismakler
but do not yet answer the question.
The question is:
"What is 2 feet plus 2 inches, in inches?"
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.
Grade cutoffs are given on the syllabus (90-100 = A, 80-89 = A-, etc.)
Reading quizzes: 5% of your grade. One for each lecture; lowest 4 dropped.
In-class polls: 5% of your grade. Graded for completion, not correctness; so low stakes!
However, misrepresenting your presence will result in a grade of 0 for the quarter.
Problem sets: 25% of your grade. One for each week, except Week 8.
Each exercise (including old exam questions) is worth 3 points.
You do not have to do them all. Recommend doing 4-5 problems.
Full credit (100 points total) for ~11 points per problem set.
Maximum 15 points per problem set.
Exams: 65% of your grade.
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.
Two "Goods" : Good 1 and Good 2
1
2
pollev.com/chrismakler
What's one point on the budget line defined by \(p_1 = 5, p_2 = 10, m = 100\)?
Definition Review:
Indifference Curves
Preferred/Dispreferred Sets
Marginal Rate of Substitution
3
4
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
5
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
6
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).
8
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.
9
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.