ECON 101-01, Introduction to Economics, Fall 2004

Abstract

Economics 101, the first of two semesters of economic principles, is an in-depth introduction to microeconomic theory and its applications. The second semester, Economics 102, introduces the student to macroeconomic theory and policy. Microeconomics is the study of the behavior of individuals in their roles as consumers, workers, producers, employers, and so on—in what Alfred Marshall called “the ordinary business of life.” For households, ordinary business includes making decisions about what goods and services to buy and in what amounts, how much of our income to give to others, and how many hours of work to offer. For firms, ordinary business includes decisions about what goods and services to produce for sale and in what amounts, and how much labor and capital to employ in order to do so. This focus on individuals (consumers, workers and the firm’s decision makers) does not mean, however, that there is no aggregation; a certain amount of aggregation occurs when we examine markets in which a number—possibly a very large number—of buyers and sellers interact. Aggregation over the economy as a whole, however, is the realm of macroeconomics. A necessary condition for success in this course is demonstration of mastery of the economic theory presented. Such demonstration includes not only the ability to explain the theory clearly but also the ability to use the theory to analyze the changes in behavior of economic actors in response to changes in circumstances and to explain the short-run and long-run consequences for the material welfare of society (i.e., of the individuals who make up the society). Beyond this, however, the successful student will learn how economists think about the problems we encounter in the pursuit of a variety of personal and social goals. This “economic way of thinking” is useful in analyzing an amazingly large number of situations, not all of which are obviously economic, and certainly not exclusively economic, in nature (e.g., the commission of certain types of crime and ways to discourage such behavior). Judge Richard A. Posner (U. S. Court of Appeals for the Seventh Circuit), one of the founders of the field of “law and economics,” makes the point as follows: Although the traditional subject of economics is . . . the behavior of individuals and organizations in markets, a moment’s reflection on the economist’s basic analytical tool . . . will suggest the possibility of using economics more broadly. That tool is the assumption that people are rational maximizers of their satisfactions. The principles of economics are deductions from this assumption . . . . [However, if] rationality is not confined to explicit market transactions but is a general and dominant characteristic of social behavior, then the conceptual apparatus constructed by generations of economists to explain market behavior can be used to explain nonmarket behavior as well. [The Economics of Justice (Cambridge: Harvard University Press, 1983), 1-2] The successful student will be able to explain how the economic way of thinking leads analysts to certain conclusions and policy prescriptions, even if the student does not ultimately agree with these prescriptions. The ability to use economic thinking is crucial not only to one’s attempts to achieve certain personal objectives but also to a better understanding of the way the world works, and the primary goal of this course is to help students gain the ability to think like an economist about a wide variety of issues. 2 Nevertheless, while you must learn to analyze events and policies as an economist would, it is not the case that you must subscribe to any particular set of values. Decision making involves combining positive analysis of what is possible in any given situation with normative judgments about which goals are most important. The positive analysis must be that of the economist; the values should be your own. Rumor has it that this is a difficult course, and it is. However, if you follow the suggestions for how to read the text and how to take notes given in this syllabus, and if you put in 12 hours per week on this course (in class, on your assignments, studying, thinking, and practicing), you should do quite well. You will soon discover the way to succeed is to read, think, study, think, practice, and think. If you are not willing to work hard, you should reconsider your decision to take this course