[SQUEAKING] [RUSTLING] [CLICKING] JONATHAN GRUBER: This is 14.01. I'm John Gruber, and
this is microeconomics. Today, I want to
cover three things. I want to talk about
the course details. I want to talk about
what is microeconomics. And then I'll start the
substance of the course by talking about
supply and demand. Couple of the points about
the course-- the course will have a distinct sort
of policy angle to it. I sort of do economic policy,
government policy is my thing. So I think it's what
makes economics exciting and it sort of offers, I
think, an interesting angle to understand why we're
learning what we're learning. I think sometimes
in an intro class, it's sort of hard to
understand why the heck you're doing things. However, that's just
sort of a slight flavor. If you're really more
interested in this, I teach a whole
course called 1441. I'm not teaching it
this year, but it will be taught by a visitor
in the spring, Kristin Butcher from Wellesley. And I'll be teaching next year. That dives much more
into these policy issues. So I'm going to use government
policy as sort of an organizing theme, but it won't be the
dominant theme of the class. Finally, three points
about my teaching style. I don't write
everything on the board. We're not in high
school anymore. You're actually responsible for
what I say, not what I write. Partly that's because my
handwriting is brutal, as you can tell already. So what that means is,
please, please do not be afraid to ask me what the
hell I just wrote on the board. There's no shame in that. Don't just lean to your
neighbors, and say, what the hell did he
just write in the board. Ask, me, because if
you can't read it, I'm sure someone else can't
read it, so feel free to ask. And in general, please
feel free to engage with questions in this class. The other point of my teaching
style is I talk way too fast. And the longer I go-- there's
a mathematical function, which is the longer I
go without interruption, the faster I speak,
until I just spin off. So basically, please
ask questions. If anything is not
clear, or you just want to ask questions
about some related tangent or whatever, please
feel free to do so. You might think, how would
that work in a class this big? There's always way too
few questions, even a class this big. So never be afraid that it
will slow me down or whatever. Ask me questions. We have plenty of
time on the class. And you'll be doing
your classmates a favor, because it'll slow me down. Finally, last point, I
have this terrible tendency to use the term "guys"
in a gender neutral way. So this class, I
like to see, looks like it's a fairly
healthy representation both males and females. When I say "guys,"
I don't mean men. I mean people. I mean people. So women, don't
take it personally. "Guys" means economic agent. It means people. It doesn't mean men. Just the way-- just
a bad tendency. It drives my wife crazy,
but I've decided better to just apologize up front
than try to fix it throughout, which is impossible. So let's talk about
what is microeconomics. So fundamentally,
microeconomics-- how people took AP high school Econ? How many people--
for how many people was it taught really well? That's about right. That's why I did my high
school online class. That's the answer
I wanted to hear. So tell your friends
still in high school who are taking high school
Econ, if your high school teacher isn't great,
tell them to go on EdX and take the class. And help out your friends
still in high school. So what is microeconomics? Microeconomics is
the study of how individuals and
firms make decisions in a world of scarcity. Scarcity is what
drives microeconomics. Basically, what
microeconomics is is a series of constrained
optimization exercises, where economic agents, be
they firms or individuals, try to make themselves
as well off as possible given their constraints. Yeah. AUDIENCE: Will this
cover irrationality? JONATHAN GRUBER: I will,
but not as much as I should. Essentially, we
have another course in the department called 1413,
Behavioral Economics, which gets into that much more. I will sprinkle it
throughout, but not as much as I actually
believe in it. In other words, the way
we think about economics is it's best to sort
of get the basics down before you start worrying
about the deviations. Find it's better
to climb the tree before you start going
out in the branches. So basically, what this
course is then about is it's about trade-offs. It's about given that
you're constrained, how do you trade off things
to make yourself as well off as possible? And behind this notion of
trade-offs is going to be-- I'll say about 100 times this
is the most important thing in the course, so
just ignore that. But this is one of the
most important things. I'll say "one of the
most important" things in the course, is the
notion of opportunity cost. Opportunity cost is a
very important concept that we teach, sort of the
first concept we teach, which is that every
action or every inaction has a cost in that you
could've been doing something else instead. So if you buy a shirt, you
could have bought pants. If you stayed at
home and watched TV, you could have been out working. Everything you do has
a next best alternative you could have done instead. And that is called the
"opportunity cost." And that's a critical
concept in economics, and that is why,
in some sense, we are referred to casually
as the "dismal science." Economics is referred to
as the dismal science. First of all, I'm flattered
we're considered a science. But it's called the
"dismal science" because our whole point
is that nothing is free. There is always a trade-off. There's always an
opportunity cost. Anything you do, you could be
doing something else instead. And your constrained
optimization means you're going to
have to pass up one thing to do another. Now, some may call it
"dismal," but as a former MIT undergraduate, I call it "fun." And this is why I think
MIT is the perfect place to be teaching economics,
because MIT engineering is all about constrained
optimization. That's what engineering is. And economics is
just the engine. It's just the principles
you learn in engineering applied in different contexts. So if we think about the
2.007 contests-- that still exist with the robots, 2.007? Yeah, the 2.007 contests,
those, as you know, are contests where you're given
a limited set of materials. And you have to build a
robot that does some task, like pushing ping-pong balls off
a table or something like that. That's just constraint
optimization. It's got nothing to
do with economics, but it's constrained
optimization. So just think of microeconomics
as like engineering, but actually interesting. So think of microeconomics
as engineering, but instead of
building something to push a ping-pong ball
off tables, you actually build people's lives,
and businesses, and understand the decisions
that drive our economy. So same principles
you could think of for your engineering classes,
but applied to people's lives. And that's why, in fact, modern
economics was born in this room, this room or 26.100 by
Paul Samuelson in the 1940s and '50s, who wrote the
fundamental textbook that gave birth to modern economics. Because he was here and
applied the kind of engineering principles of MIT
to actually develop the field of modern economics. What we'll learn today
was developed at MIT, so it's a great place
to be learning it. Now, with that as background--
any questions about that, about what is microeconomics? With that as
background, let's turn to our first model we'll talk
about this semester, which is the supply and demand model. Supply and demand--
now, the way we're going to proceed in this course
is going to drive you crazy, because we're going to
proceed by teaching, as the very first
question pointed out, by teaching very
simplified models. We're going to essentially--
what is a model? A model is technically
a description between any two or more economic
variables or any two or more variables. But unlike the models used
in all your other classes, these aren't laws, by and
large, they're models. So we don't have a relation
between energy and mass which you can write down. It's a law and you're done. We have models which are
never 100% true, but always pretty true, "pretty"
being somewhere between 10% and 95% true. So basically, the idea
is to make a trade-off. We want to write
down in our models a set of simplifying
assumptions that allow us, with a relatively
small set of steps, to capture relatively
broad phenomena. So it's essentially a trade-off. On the one hand,
we'd like a model that captures as well as
possible the phenomena in the real world, like
E equals Mc squared. But we want to do so in the
most tractable possible way so that we can teach it
from first principles, and don't need an arrow to teach
every single insight we have. So basically in
economics, we tend to resolve that by erring
on the side of tractability. That is why I can teach
you the entire field of microeconomics--
which is really sort of-- macro is kind of
a fun application. Micro is really economics. I can teach you the entire
field of microeconomics in the semester,
because I'm going to make a whole huge set
of simplifying assumptions to make things tractable. But the key thing
is that you will be amazed at what these
models will be able to do. With a fairly simple
set of models, we will be able to offer
insights and explain a whole huge variety
of phenomena, never perfectly, but
always pretty well, generally pretty well. And so that is
essentially the trade-off we're going to try
to do this semester. So the line I like
is the statistician George Box said that all models
are wrong, but some are useful. Now obviously, it doesn't apply
to models in the hard sciences, but in the social
sciences, that's true. And basically, I'm
going to write down a set of models like that. Now, with every model I write
down, I'm going to try-- my goal is to have you
understand it at three levels. The first and most
important level is the intuitive
level, the level which you sort of understand. I call it "passing
the Mom Test." You can go home and explain
it to your mom at Thanksgiving or at the end of semester. No offense to dads, just
called it "the Mom Test." So basically, that's
the intuitive level. You really understand it in a
way that you could explain it. The second is graphical. We were going to do--
most of our models here were developed in a
graphical framework using x/y graphs that really in
economics, we think delivers a lot of shorthand power. And the third is mathematical. The mathematical is probably
the least important, but it's the easiest
to test you on. So we're going to need to know
things mathematically as well. So let's start by considering
the supply and demand model by using
the famous example brought up by Adam Smith. Adam Smith is sort of considered
the father of economics. If Paul Samuelson is the
father of modern economics, Adam Smith is the
father of all economics. His 1776 book, The
Wealth of Nations did an incredible job
of actually laying out the entire core of
the economics field-- no math, just words,
but he just nailed it. And one of his most
famous examples was the water diamond paradox. He said, think about
water and diamonds. He said, start with water. Nothing is more important
for life than water. It's the building
block of all of life. Even when we look for
life on other planets, we always start by
looking for water. Now think of diamonds, one
of the more frivolous things you can buy, certainly
irrelevant to leading a successful or happy or
productive life, or any life. Yet for most of us,
water's free and diamonds are super expensive. How can this be,
Adam Smith asked. Well, the answer he posed is
that what I first described was just demand. That is, we demand
lots of water. We demand fewer diamonds. But we have to match that
with the concept of supply. And the supply of water
is almost infinite, while the supply of diamonds--
maybe not naturally, maybe it's through decisions
of various businesses-- but it's somewhat limited. So basically what
he developed is what we call the "supply
and demand scissors"-- that you can't just think of
supply or demand in isolation. You have to put
them together if you want to explain the real world
phenomena we see, like the fact that water is cheap and
diamonds are expensive. So let's just about an example. So there's one graph
that was handed out in the back, which
is, let's talk about the market for roses. So in the market for roses,
we have a demand curve and a supply curve. So what we have here-- this
is the kind of x/y graph we're going to look at all
throughout the semester. On the x-axis is the
quantity of roses. On the y-axis is
the price of roses. The blue, downward-sloping
line is the demand curve. Now, what I'm going to do here,
I'm just giving you a overview. We are going, over the next
five or six lectures, dive into where this demand
curve comes from. We'll go to first principles
and build it back up. But for now, what
we know of a demand curve is it simply
represents the relationship between the price of a good
and how much people want it. Therefore, we assume
it is downward sloping. At higher prices, people
want less of the good. And we'll derive where
that comes from shortly, starting next lecture. But for now, I think
it's pretty intuitive that if the price
of roses is higher, people want fewer of them. And that's why it's
downward sloping. Basically, as the
price of roses goes up, people want fewer roses. The yellow curve is
the supply curve. Now, after we've derived
the demand curve, we'll then go and
spend about 12 lectures deriving the supply curve. That's a bit harder. But once again, we'll
start from first principles and build it up. For now, you just need to
know that's how much firms are willing to supply,
given the price. So basically, as
the price goes up, firms want to
produce more roses. The higher price means
you make more money, so you want to
produce more of them. This is slightly less
intuitive than demand, but we'll derive it and
explain how it can be. But for now, just go
with the basic intuition that if you're making
something, and you can sell it in the market for
a higher price, you're going to want
to make more of it. And that leads to the
upward sloping supply curve. Where the points meet is
the market equilibrium. Where supply and demand meets
is the market equilibrium. And that is the point where
both consumers and producers are happy to make a transaction. Consumers are happy because
on their demand curve is the $3 and 600 roses. That is, they are willing
to buy 600 roses at $3. Producers are happy,
because on their supply curve is the same point. They are willing to
supply 600 roses at $3. That is the one point
where consumers are happy and producers are happy. Therefore, it's
the equilibrium-- highly non-technical, but
that's the basic intuition. The point at which they're
both willing to make that transaction, the
point at which they're both satisfied with
that transaction, is the equilibrium, which
in this case is $3 per rose and 600 roses. Now, this raises
lots of questions. Where did the curves come from? How does equilibrium
get achieved? Why the heck do we give roses? These are a bunch of questions. We will come to
all these questions over the next set of lectures. But the basic thing
is to understand this intuition of Adam Smith's
supply and demand model. Questions about that? Now, this model also raises
another important distinction that we'll focus
on this semester and is easy to get mixed up. So I want you to, if
you're ever unclear, I want you to ask me about it. And that's the distinction
between positive versus normative analyses--
positive versus normative. Positive analysis is the
study of the way things are, while normative
analyses is the study of the way things should be. A positive analysis is the
study of the way things are, while normative
analysis is the study of the way things should be. Let me give you a great
example, which is eBay auctions. Auctions are a terrific example. They're like the
textbook example of a competitive market. You can see it in your head-- demand comes as a bunch of
people going on and bidding. People who want
it more bid more, so you actually
get a demand curve. The higher the price, the fewer
people you're getting to bid. Supply is how many units
of it are for sale on eBay. You bid until those two meet. And then you have a
market equilibrium at that bidded price. Now, one example
of an eBay auction that got a lot of attention
a number of years ago, early in the days
of eBay, was someone offered their
kidney for auction. They said, look,
I got two kidneys. You only need one to live. There are people out
there who need a kidney. I'm putting my kidney
on eBay for auction. And what happened,
bidding went nuts. It started at $25,000. It climbed to $5 million before
the auction was shut down, and eBay decided
they wouldn't allow you to sell your body on
eBay, bodily parts on eBay. So this raises two questions. The first is the
positive question, why did the price go so high? So what's the answer to that? What's the answer to
the positive question? AUDIENCE: Somebody
wanted a kidney. JONATHAN GRUBER: Good
answer, but let's raise hands and give answers. That's part of it. Yeah. AUDIENCE: Low
supply, high demand. JONATHAN GRUBER: Low
supply, high demand. Demand is incredibly high,
because I'd die without it. Supply is low, because
like not a lot of us are willing to
sell their kidneys on eBay So low supply, high
demand led to a high price-- Adam Smith at work. That's the positive analysis. But then there's the
normative question, which is, should you be allowed to
sell your kidneys on eBay? That's the normative question. The positive question is,
what happens if you do? The normative question
is, should you? Now, the standard
economics answer to start would be, of course you should. We're in a world where
thousands of people die every year because there's
a waiting list for a kidney transplant. and these are people who would
happily pay a lot of money to stay alive, I presume. Meanwhile, there's
hundreds of millions of people walking around with
two kidneys who only need one. And many of these
people are poor. And lives could be changed
by being paid $1 million for their kidney, and might be
happy to take the risk that one kidney will be fine, as
it is for most everyone for most of their
life, in return for having a life-changing
payment from a stranger. So economists say, look-- here's a transaction that
makes both parties better off. The person who gets the
kidney gets to stay alive, and they are willing to
pay a huge amount for that. The person who sells the
kidney in most probability is fine, because
almost all of us can make it through life
fine with one kidney, and create a life-changing
amount of money that could allow them to pursue
their dreams in various ways. So that's the standard
argument, would be, yeah, you should be able to
sell your kidneys on eBay. So the question is, why not? Why would we want to
stop this transaction? What are the
counter-arguments to that? Let's raise our hands. Yeah. AUDIENCE: Potentially, I
think maybe the issue is because on eBay, there's
no way to regulate it or you don't necessarily know. People could be like selling
fake kidneys, per se. JONATHAN GRUBER: Right. So the first type
of problem comes out of the category we
call "market failures." Market failures are reasons
why the market doesn't work in the wonderful
way economists like to think it should. So for example,
this answer puts up there could be the
problem of fraud. People might not be
able to tell if they're getting a legit kidney or not. There could be the example
of imperfect information. Do you know what the
odds are that you can spend the rest of your
life with only one kidney? I don't either. We ought to know that before
we start selling our kidneys. There could be
imperfect information. This is one type of problem,
which is the market, maybe the market may fail. Yeah. AUDIENCE: Well, the
current system also holds people who are poor
and have a failed kidney-- and which are people who would
be completely screwed otherwise in the [INAUDIBLE] system. JONATHAN GRUBER:
A second problem is what we call
"equity" or "fairness." Equity or fairness, which is
we would end up with a world where only rich people
would get kidneys. Currently, there's a bunch of
voluntary donors and people who are in accidents who
have kidneys left over. And those go to people
on the basis of where they are on a waiting list. It's actually a
prioritized waiting list. It's kind of a cool-- one of my colleagues, Nikhil
Agarwal, if you think about-- I'll talk a lot this semester
about the imperialistic view of economics, all the
cool things we can study. So he actually uses
economic models to study the optimal way to
allocate organs to individuals. now it's just done
based on a waiting list, but it may be that someone
further down the waiting list needs it more than someone
higher up the waiting list because they're more
critical or whatever. So there's various
optimal ways to allocate. But certainly, the
optimal way to allocate wouldn't be the rich
guy gets it first. That would be unlikely to be
what society would necessarily want. So there's an equity
concern with that. What else? What other-- yeah. AUDIENCE: In that
situation, since you know you can make money
off of selling kidneys, and you take advantage
of people, it's very bad, the black market for kidneys. JONATHAN GRUBER: Right, so
there's sort of a third-- it's related to
fraud, but there's sort of a third
class of failures that gets into the question
about behavioral economics that was raised earlier, which
we could just call behavioral-- it's called
"behavioral economics," for want of a better term,
which is essentially, people don't always
make decisions in the perfectly rational,
logical way we will model them as doing so this semester. People make mistakes. That's a word we hate
using in economics. We hate saying "mistakes." Ooh, boo, mistakes--
nobody makes mistakes. We're all perfectly
economic beings. But we know that's not true. Increasingly over the
past several decades, economists have started
incorporating insights from psychology into our
models, to not just say people make mistakes,
that their lackadaisical, but to rigorously model the
nature of those mistakes and understand how
mistakes can actually happen due to various cognitive
biases and other things. In this world, you can imagine
people could make mistakes. They could not really
sit down and quite understand what
they're doing, and they could have sold their
kidney when it's really not in their own long-term interest. Yeah. AUDIENCE: Would
another example be if there's a family that
is in extreme poverty, even though they
only have one kidney, they might sell the other
one, just to get more money for the family, per se? JONATHAN GRUBER: Well, in
some sense that would be, once again-- if we took this factor out,
if the market works well with its behavioral
effects, we'd say, you know, that's their decision. If they otherwise they
starve, who are you to say? But once you choose
this, say, wait a second, maybe they're not evaluating
the trade-offs correctly. Even if there's no fraud, even
if there's perfect information, they may not know how to process
that information correctly. But that is not
standard economics. That's not what we'll spend a
lot of time on in the semester, but it's obviously realistic. So those are a bunch of good
comments, great comments. And yeah. AUDIENCE: Also, in
inelastic demand, such that people
always need kidneys-- JONATHAN GRUBER: That won't
turn out to be a problem. That doesn't turn
out to be a problem. We'll come back--
that's a great comeback that we talk about the
shape of demand curves. We want to return to that
question in a few lectures, but that doesn't
actually cause a problem. It's just that's more of
a positive thing about why the price is so high, but it's
not a normative issue about whether you should
allow it or not. So basically,
these are exactly-- to me, honestly, I spend
my life thinking a lot about these things. I think these are really
interesting issues. But you can't get to
the normative issues without the positive analysis. You do the positive
analysis to understand the economic framework
before you start jumping to drawing conclusions. That's no fun. We all want to jump
to draw conclusions, saying this should happen,
this shouldn't happen. You can't do that. We have to be disciplined. We have to start with the
fundamental economic framework. And basically, the bottom line-- I said I'll teach this
course with a policy bent, but you have to recognize
that economics at its core is a right-wing science. Economics at its
core is all about how the market knows best, and that
basically governments only mess things up. That's sort of the
basic, a lot of what we'll learn this semester. As the semester
goes on, we'll talk about what's wrong
with that view and how governments
can improve things. Indeed, I teach a whole
course about the proper role of government the economy. But the standard of economics
is, "the market knows best." And that leads us to the last
thing I want to talk about, which is basically, how freely
should an economy function? Let's step back to
the giant picture. Let's step back from
a market for roses to the entire economy. How freely should a market,
should an economy function? We have what's known as
a "capitalistic economy." In a capitalistic economy,
firms and individuals decide what to
produce and consume, maybe subject to some rules of
the road set by the government. There's some minimum
rules of the road to try to avoid fraud
or misinformation, but otherwise, we
let the dice roll. Firms let consumers
decide sort of what to do. Now, this has led to
tremendous growth. America was not
a wealthy nation, was not a very wealthy
nation 100 years ago, or 150 years ago. Led to tremendous
growth, where we are now the most powerful, still the
most powerful and wealthiest nation the world, largely driven
by the capitalistic nature of our economy. On the other hand,
we are a nation with tremendous inequality. We are by far the most unequal
major nation in the world. The top 1% of Americans has a
much higher share of our income than in any other large
country in the world, any other large developed
country in the world. The bottom 99% has less of
our income corresponding with anywhere else. So it's led to major inequality. And it's led to other problems. It turns out that the
government can't appropriately set the rules of the road to
avoid things like fraud, as we saw with Enron, if you
remember back to that, or a lot of what happened
in the financial meltdown. It turns out it's
hard to get people perfect information, et cetera. So we've seen the problems. We've grown very
wealthy as a nation. We've introduced a whole set of
problems through this system. Now, the other extreme is what's
called the "command economy." Rather than a
capitalist economy, it's what's called
a "command economy." In this case, the government
makes all the production and consumption decisions. The government doesn't just
set the rules of the road, the government owns the road. The government says, we're
going to use this many cars this year. And people can get
them in some way. It could be a lottery,
could be waiting in line. How do we decide how
to allocate them? We're not going to let
the market allocate them. We, the government,
will allocate them. We'll allocate how many get
produced and who gets them. And this was the model
of the Soviet Union that I grew up with. This was the pre-1989
Soviet Union. The government decided how many
shirts, cars, TVs, everything. It's sort of bizarre
to think that literally everything the government
decided how much to produce. And by and large, the government
decided who got it partly through corruption-- that
is, the party members, party leaders got it first-- and often just through waiting
in line for the remaining application. Now in theory,
this ensured equity by making sure that
everybody had shot at things. In practice, it didn't
work well at all and actually was
what dragged down the collapse of the
old Soviet economy, was that the command
model simply doesn't work. Partly there's just too many
opportunities for corruption. When the government
controls everything, that means there's no checks
and balances on the opportunity for enormous corruption. The capitalist economy puts
some natural checks and balances on that. And partly because it
turns out that it's hard to control human nature. And Adam Smith had it right. Adam Smith talks about
the "invisible hand" of the capitalist economy. The invisible hand is
basically the notion that the capitalist
economy will manage to distribute things roughly in
proportion to what people want. And that's where
folks want to be. Folks who want a
certain kind of car are going to want to
get to that kind of car, and if the government
has it wrong, they're going to get upset. And it's going to lead to
a less functional economy. So basically, Adam
Smith's view is that-- the invisible hand view is that
consumers and firms serving their own best interest will
do what is best for society. So the fundamental core
of the capitalistic view is that consumers and firms
serving their own best interest will do what ends up
being best for society. And that's essentially
the model we'll learn to start in this course. Yeah. AUDIENCE: In that
definition, are we defining the best for
society as in everybody has the most money? Or everyone has the best health
or the best standard of living? What is the best [INAUDIBLE]? JONATHAN GRUBER: Great question. We're going to spend a lot
of the semester talking about that. For now, we're going to
define "best for society" as the most stuff gets
produced and consumed. That's how we're
going to find it-- obviously raises a set
of issues about what about pollution, what
about health, et cetera. We're going to come to those,
but for the first two-thirds of the course "best
for society" means what we're going to call
"maximum surplus," which is the most stuff gets
produced that people value. So that's how we're
going to do it. And in his view, the
invisible hand does that. And by and large, it's a very
helpful framework to turn to. However, at least it
can lead to outcomes that are not very fair. So the way we're going
to proceed in this course is we're going to start
by talking about how Adam Smith's magic works. How does the magic happen? How does individuals
and firms acting in their own self-interest,
without caring about anybody else, end up yielding
the largest possible productive economy? How does that happen? And we're going to
talk about that. We'll start with
demand, which is how do consumers
decide what they want given their resources. We'll talk about the principle
of utility maximization, the idea that I have
a utility function that I can mathematically
write down what I want. I'll have a budget constraint,
which is the resources I have, and those two
constrain optimization. We'll say given what I want
and the resource I have, what decisions do I make? Boom, we get the demand curve. Then we'll turn to supply, and
we'll talk about how do firms decide what to produce. That's much more
complicated, because firms have to decide
what inputs to use and what outputs to produce. And we'll talk about
how firms can operate in very different markets. There is a competitive market
that Adam Smith envisioned, but that doesn't always work. Sometimes we get
monopoly markets, where one firm dominates. And you can actually
have outcomes which aren't the best
possible outcome, even with the invisible hand. So we'll talk about
different kinds of markets. Then we'll put it together
to get market equilibrium, and talk about
Smith's principles. And then from there, we'll
talk about how it breaks down in reality, different
change in reality, how there are various
market failures that can get in the way, why we
have to care about equity and what implications that has,
about behavioral economics, about a set of other factors. So that's basically how we're
going to proceed this semester. As I said, the
lectures are important, but the recitations are as well. Once we're sort of
in steady state, the recitations will be about
half new material and half working through problems
to help you prepare for that next problem set. So the way the problem
sets are going to work is the problem set
that's assigned will cover material that's
taught up to that date. So for example, problem
set one is going to be assigned next Friday. That will cover everything
you've learned up through next Wednesday. Therefore, in section
on next Friday, we'll do a practice problem
which you should understand because it'll cover things
that were taught in class, and help prepare you
for the problems. And we'll do that every week. That's about half the section. The other half of the
section will be new material. This Friday, the section on
Friday is all new material. What we do on Friday is
cover the mathematics. I don't like doing math. I always get it wrong. So I leave math for the TAs,
who are smarter than I am. So this Friday, we'll be doing
the mathematics of supply and demand, and how you
take the intuition here and the simple
graphics, and actually turn it into mathematical
representations, which is what you need for the problem sets. That's this Friday. Then we'll come back
on Monday and start talking about what's
underneath the demand curve. All right, any other questions? I'll see you on Monday.
