1. Introduction and Supply & Demand

Key Takeaways

• Course Focus: The microeconomics course will feature a distinct policy angle, exploring government policy as an organizing theme to make economic concepts more exciting and relevant, though it won't be the dominant focus. 0:36
• Teaching Style: The instructor encourages questions, acknowledging he speaks fast and has "brutal" handwriting, stressing that students are responsible for what is said, not just what's written; he also clarifies his gender-neutral use of the term "guys." 1:09
• Microeconomics Defined: Microeconomics is fundamentally the study of how individuals and firms make decisions in a world of scarcity, conceptualized as a series of constrained optimization exercises where economic agents maximize well-being given their limitations. 3:32
• Opportunity Cost: A critical concept is opportunity cost, meaning every action or inaction has a cost in that you forego the next best alternative, underpinning the economic notion that "nothing is free" and there is always a trade-off. 4:58
• Economic Models: Economic models are simplified descriptions used to capture broad phenomena tractably, which, unlike laws in hard sciences, are "never 100% true but always pretty true," as "all models are wrong, but some are useful." 8:13
• Levels of Understanding: Models should be understood at three levels: intuitively (able to explain it simply, called the "Mom Test"), graphically (using x/y graphs for shorthand power), and mathematically (essential for problem sets and testing). 10:27
• Supply and Demand: Adam Smith's "supply and demand scissors" illustrate that market phenomena, like the water-diamond paradox, can only be explained by considering both the demand (people want less at higher prices) and supply (firms produce more at higher prices) simultaneously, leading to a market equilibrium. 12:41
• Positive vs. Normative Analysis: It's crucial to distinguish between positive analysis, which studies "the way things are" (e.g., why kidney prices are high), and normative analysis, which studies "the way things should be" (e.g., whether selling kidneys should be allowed, considering market failures, equity, and behavioral economics). 16:43
• Economic Systems: Capitalism, characterized by firms and individuals making production/consumption decisions (Adam Smith's "invisible hand"), drives growth but can lead to inequality, contrasting with command economies (like the former Soviet Union) where government controls everything, often resulting in inefficiency and corruption. 26:42
• Course Progression: The semester will initially focus on how Adam Smith's principles lead to maximum "stuff produced and consumed" (maximum surplus), then pivot to examine how these systems break down in reality due to market failures, equity concerns, and behavioral economics. 31:42