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Topic 0: Introduction

Georgy Artemov1

1Department of Economics, University of Melbourne

ECON30010 - Semester 1, 2016

ECON30010 Topic 0: Introduction Introduction 1 / 21

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Organisational details

Personnel and Responsibilities, 1

Instructor: (Georgy Artemov)

Ask me questions about the material: lecture notes, tutorials, questions inor solutions for the assignment.

Head Tutor: (Wasana Karunarathne)

Ask Wasana administrative questions: your marks on the assignment,problems submitting an assignment, or submitting it on time, missing

assignments, missing information on the LMS, etc.


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Personnel and Responsibilities, 2Tutors:

Tutors will primarily answer questions about tutorials You can ask them questions about lectures and assignments, but many of

these will be passed to me. They probably be answered through the onlinetutor. This is to ensure consistency across tutorials.

None of us can answer such questions as:

Can I switch tutorials? You can do it online before 18 March athttp://ask.unimelb.edu.au/app/answers/detail/a_id/6036;Wasana cannot re-allocate tutorials;

Can I have an extension? You need to lodge a request herehttp://go.unimelb.edu.au/yh9n or apply for special considerations here:http://students.unimelb.edu.au/admin/special.

Most other things we cannot do could be done by visitingstudents.unimelb.edu.au/stop1


http://ask.unimelb.edu.au/app/answers/detail/a_id/6036http://ask.unimelb.edu.au/app/answers/detail/a_id/6036http://go.unimelb.edu.au/yh9nhttp://students.unimelb.edu.au/admin/specialhttp://localhost/var/www/apps/conversion/tmp/scratch_3/students.unimelb.edu.au/stop1http://localhost/var/www/apps/conversion/tmp/scratch_3/students.unimelb.edu.au/stop1http://students.unimelb.edu.au/admin/specialhttp://go.unimelb.edu.au/yh9nhttp://ask.unimelb.edu.au/app/answers/detail/a_id/6036http://find/

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Communication: LMS and Online Tutor

We use LMS to communicate all the important information.

We use online tutor to answer common questions about the material. It is really important to ask questions that you think are of interest to

everyone. Coming up with questions is important for your learning; hence, just

looking at what other people have asked may help you with thematerial.

If there are too many questions in online tutor, it becomes impossibleto browse them

⇒ We will not necessarily answer all questions. Please do not be upsetabout it; we just need to keep this resource useable for everyone.


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Communication: Math reviews

We use math reviews to help you with math. They are not mandatory; They are not extra tutorials; it is more like an extra consultation hour

designed for math;

You come and solve problems that are posted in advance; Do not expect that all solutions will be posted online. We will post

answers to some problems, especially these that proved to beparticularly challenging;

They are designed for students who struggle with math in this course.If you do not, you are unlikely to benefit;

Nothing that happens in math review will be tested on the exam (moreon that later).


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Textbooks: main

The main textbook for this subject is Hal

Varian, “Intermediate Microeconomics withCalculus a Modern Approach 1st EditionInternational Student Edition”

You can buy a hard copy from coop for

AUD125

Or you can buy an electronic copy from thepublisher for AUD55.http://au.wiley.com/WileyCDA/

WileyTitle/productCd-EHEP003532.html

I have an electronic copy. It requires you to install VitalSource app and Ifind this app to be worse than Kindle (it keeps wide original hardcover bookmargins; why??? – and I don’t know how to solve this problem). But I think the

electronic copy is a better deal anyway.ECON30010 Topic 0: Introduction Introduction 6 / 21

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http://au.wiley.com/WileyCDA/WileyTitle/productCd-EHEP003532.htmlhttp://au.wiley.com/WileyCDA/WileyTitle/productCd-EHEP003532.htmlhttp://au.wiley.com/WileyCDA/WileyTitle/productCd-EHEP003532.htmlhttp://au.wiley.com/WileyCDA/WileyTitle/productCd-EHEP003532.htmlhttp://find/

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Textbooks: Should you buy it?

Unfortunately, there is no textbook that suits this subject well. The

common problem is that almost all level-3 textbooks are just extendedversions of level-2 textbooks, so they repeat a lot of material that youhave already covered in your ECON20002, but with a bit more math.

Varian’s textbook suffers from exactly this problem, but it does have

some nice applications that I intend to look at. However, for thesethat we cover, we will go much deeper. So, Varian’s textbook, likeany other textbook, would be of limited use exactly when you need itthe most. Sorry – Varian is the best match I could find.

Will you use it? Not nearly as much as you used your textbook inECON20002, but I think it will provide a useful reference and a guide.

One thing I have kept in mind looking for a textbook is the cost: buying avery expensive textbook and using it sparingly is very annoying, but e-copydownloadable to four devices for AUD55? Maybe it is ok.


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Textbooks: Supplementary

Another textbook I recommend is Roberto Serrano and Alan Feldman, “A

Short Course in Intermediate Microeconomics with Calculus”.

This is the only textbook I know that have been written from scratchwith your level in mind. It does repeat some level-2 material, but that

repetition is at the necessary minimum. However, the problem in this book is insufficient range of applications.

This problem aside, I expect a few people may like it better thanVarian. I will try to reference Serrano-Feldman whenever it is possible.

It is also available as e-copy from Amazon for about AUD50:http://www.amazon.com.au/

Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/

B00A8GYNOK/



http://www.amazon.com.au/Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/B00A8GYNOK/http://www.amazon.com.au/Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/B00A8GYNOK/http://www.amazon.com.au/Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/B00A8GYNOK/http://www.amazon.com.au/Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/B00A8GYNOK/http://www.amazon.com.au/Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/B00A8GYNOK/http://www.amazon.com.au/Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/B00A8GYNOK/http://find/http://goback/

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Papers

I will use quite a few of real journal articles in teaching ECON30010.

I will give you the names of the articles and publishing details; You can easily find and access them through the library website:

Go to library.unimelb.edu.au,

then find the search field

Combined search of the catalogue,digital collections, ebooks and some databases

, then the system will prompt you to log-in to access the article.

You are not required to read them to do well on exam.

However, I do hope that you will find some topics from the articles

that I cover interesting and then go to the original source. I alwayssimplify the presentation for teaching, but I also always select thearticles that I think are accessible (or at least have a simplifiedexample at the beginning of the article that is meant to capture theessence of the general model). I hope you will enjoy some of them.



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Lecture slides

Lecture slides are not a book.

They do not contain all the details that textbook would contain (youwould hate my slides if they did).

You should not expect to be able to study using lecture slides alone (e.g. without attending the lectures or listening to a recording). I doexpect that you will consult a textbook if you feel that a particulartopic is difficult.

You should use lecture slides as a guide to what has been covered on

lectures.

Lecture slides are organised by topics, not by lecture numbers. Forexample, Topic 1 will last longer than just today’s Lecture 1.



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Assessment

35%: 5 homework problem sets: The due dates are posted on the LMS;

Some problems are similar in difficulty to the final exam problems;these will be marked; Some problems are much more difficult than the final exam; Remember that all submissions must be independent.

65%: final exam.



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Final exam: materials You will NOT be allowed to bring calculators to the final exam.

And you will not need them.

You will be allowed to bring 10 two-sided A4 pages to the final exam. These pages must have your name and your ID number in

the right-top corner. Please be careful: any page that doesnot have this information may be considered an

inappropriate material and lead to much trouble; You can have whatever you like on these 10 pages;

handwritten, or printed, or both;

Keep in mind, though that you cannot bring a microscopeto the exam.

Tutors will not know the content of the final exam; please do notsecond-guess from their answers what will be on the final exam.

Moreover, the material has change substantially from the previousyears, so if someone claims that she knows any questions or anyanswers, you would need to inquire whether she is Ms. Trelawney.



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Final exam: coverage

The final exam is based on everything that is in the lecture slides,

tutorials and assignments Nothing else will be explicitly tested

How should you understand it?

When I write exam problems, I will have lecture slides, tutorials and

assignments in front of me. I will not have a textbook, the materials frommath review or anything else in front of me. It is possible that I will comeup with a problem that is similar to textbook (Varian’s or any othertextbook for that matter), but it would be purely by chance.

Close to the end of the semester I will release some sample problems.These are the combination of some past problems (we have a very limitedsample, because I have changed the course from the last year a lot) andthe problems that I wrote for the actual final exam, but decided that some

other problems are better.ECON30010 Topic 0: Introduction Introduction 13 / 21

The philosophy of this subject

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Level 1 and 2 courses

In levels 1 and 2 you have seen a lot of microeconomics. You knowwhat the optimal behaviour of an agent in the market is, how marketform the prices and what not. You know a lot of facts , such as thatoptimal consumption of junk food is where MRS JF = P J /P F .

These facts are derived from specific models. Models take intoaccount the most important aspects of a “situation” and abstractaway less important aspects.

However, in a real life “situation” some less important aspects may

suddenly become critically important. The course will be pepperedwith examples; here is one:



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ECON30010

Example

Suppose that two firms compete in prices (such as in Bertrandmodel), but need to build the production capacity first.

If you just rely on the results from the standard model, you cannot

say much: the fact that a firm may undercut the other firm and notbe able to serve the whole market is critical in your situation, but notpresent in the model.

You need to know how to adjust Bertrand model to obtain a sensible

result.

Writing the models, or adjusting the existing models (which is really thesame thing) is what I want us to practice in this subject.



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Philosophy of this subject: motivation

I will use Susan Athey’s answers on Quora to motivatewhat I am trying to achieve in this subject.

Susan Athey is one of the most famous academic economists. She is also aboard member of Expedia, Ripple and CoinCentre and advised a number

of companies.On Quora she answered such questions as why tech companies are hiring alot of economists nowadays and what is economists’ bring to thesecompanies.You can read complete answers here:

http://goo.gl/ubkhrZhttp://goo.gl/XjlDIs

http://goo.gl/SN2WGO

Excerpts are on the next slide.



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Excerpts from Susan Athey’s answers

In general, economists have a comparative advantage at coming up with new conceptual insights, frameworks, and useful abstractions of acomplex world that help organize thinking. [. . . ] Thousands of datascientists are being trained every year [. . . ] but they are trained more in the application of techniques, rather than how to frame a questionor how to map a question into a statistical approach. Economists are ultimately question-driven, and that is a key skill for both research and

policy impact.

[. . . ] I think economists provide much more value [. . . ] when the world is changing. If e-commerce and search engines had been around 150 years, then a consulting firm like McKenzie could come in and give best

practices [. . . ]. It is exactly when the conceptual framework hasn’t been invented yet, when there is no conventional wisdom about how to manage the AirBnb marketplace, when a brand new auction needs to be invented beyond what has ever been done before (spectrum auctions)that the world’s best economists (and economists-as-engineers) shine.



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Take-away from Susan Athey’s answers

Note that nowhere in these quotes (as well as in full answers) she says

that economists are useful because they know some models. She says thatthey are useful because they can formulate the models.

In this subject, we will try to take some steps in this direction.

Economics gives us a guide how to formulate the models and provide toolshow to solve these models. Such a guide and the tools can be applied to avariety of situations, including these that seem to have nothing to do witheconomics, such as:

How to allocate students to schools efficiently? How to take overtime penalty kicks or possession of a ball in football

fairly?

What is the best rating system for AirBnb or Uber?



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Final exam advice again: methods vs. results

All this sound great, but some find this approach really scary whenthinking about assignments and, especially, the final exam. There are tworeasons for that.

First, since we focus on methods/processes rather than results,memorisation does not really help. It is very difficult to memorise the

method if you do not understand it; a very small change will send youoff-track.

Some of you have perfected studying techniques in whichmemorisation is an important aspect. These studying techniques

won’t be useful in this subject. You may expect to find an answer to a homework problem in lecture

notes or tutorials. It won’t be there: the method will be there, butthe model is slightly different hence the actual answer may becompletely different.



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Final exam advice again: multiple answers

The second reason is that my questions often allow for several answers.

It would not be scary if they were essay-type questions, where youknow that the answers (essay) cannot possibly be the same. But I will

sometimes ask math-sounding questions that would have severalcorrect answers. That does not feel right to some people.

However, the reason why I need this is simple: we are learning to mapreal life into models. This means we identify important aspects andleave out unimportant ones. That choice need not be unique.



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Final exam: what to include in 10 pages

I would think about these 10 pages as an insurance policy. It is also a tool

to stamp out the memorisation in this subject.

You do not have to have any formulae handy: if I want to ask you aboutformula, I would not ask you to write the formula. I would write theformula for you and ask you about its interpretation. So, there is no needto include every possible formula in this course on these 10 pages. That will not be tested.

You cannot include every variation of the model in these 10 pages. Youwould need about 10,000 pages for that.

However, sometimes you can find that there is a particular detail of amodel that is not very intuitive for you. You may want to put it in,because you are more likely to forget things that are not intuitive.

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