7/29/2019 Economics Lecture from UC Berkeley

1/5

8/25/2012 4:19

OUTLINE August 27, 2012 Administrative Matters & Overview of Course

The Use of Economic Models

Economics: Positive versus Normative

Production Possibilities Frontier

ECONOMICS 1www.econ.berkeley.edu/~olney/fall12/econ1

Introduction to Economics

Professor OlneyAdministrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Two Handouts Syllabus Exercise #1

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Administrative Miscellanea

1. www.econ.berkeley.edu/~olney/fall12/econ1

2. Piazza.com for questions

3. Enrollment handled by Head GSI Emiliano Huet-Vaughn

4. E-mails archived at bspace.berkeley.edu

5. Letter of Introduction for 2nd section meeting

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Question: Have you registered your iClicker aticlicker.com?A. Yes

B. Not yet

iClicker

i>clicker i>clicker2

7/29/2019 Economics Lecture from UC Berkeley

2/5

8/25/2012 4:19

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Reader at Copy Central on Bancroft Downloading instead?

Probably need New York Times subscription

Print out hard copy for section discussion

Question: Will you buy the reader ($20) or download thearticles?

A. Buy it ($20)

B. Download the articles

C. I havent decided

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Overview of Econ 1 Microeconomics

decision making by individual economic agents

Macroeconomics

the economy as a whole

Goal of course

Applicability of economics tools to real world

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Evaluating Policy

To evaluate any policy compare the policysresults with what would have been in theabsence of the policy

Yesterday(before the policy)

Today(with the policy)

NOT vs.

What todaywould have

been likewithout the

policy

Today(with the policy)

BUT insteadvs.

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Counterfactual

Counterfactual

What would have been in the absence of the policy

How do we know what would have been?

We use models

7/29/2019 Economics Lecture from UC Berkeley

3/5

8/25/2012 4:19

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Models are used to answer questions Characteristics of models

1. a question

2. simplifications and abstractions

3. assumptions about economic behavior

Ways to express models

1. words

2. graphs

3. equations

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Analyzing is not Judging Positive Economics

Normative Economics

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Criteria for Judging

Efficiency

Equity

Growth

Stability

What if goals conflict?

Your value system dictates which goals are more

important than others

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

One Definition of Economics

Resources include

Land

Labor

Constraints

Technological

Institutional

Disciplined study of the allocation of scarce resources

Capital"

Knowledge

7/29/2019 Economics Lecture from UC Berkeley

4/5

8/25/2012 4:19

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Production Possibilities Frontier Question:

What are the general characteristics

of the possible combinations of output

that can be produced

in an economy

within a given time period?

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Production Possibilities Frontier Simplify: Only 2 types of output

Assume: No deliberate waste

We use all resources as efficiently as possible

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Example: Food & Machines Possible combinations of food (F) & machines (M)?

Opportunity cost of those 10 machines?

January February

100 machines2,000 units food

110 machines________ units food

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Opportunity Cost

Definition

Most desired activity foregone in order to do

something else

What are the opportunity costs of going tocollege?

7/29/2019 Economics Lecture from UC Berkeley

5/5

8/25/2012 4:19

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Opportunity Cost

Opportunity cost of those 10 machines?

January February March

100 machines2,000 units food

110 machines_______ units food

120 machines______ units food

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Law of Increasing Opportunity Costs

Opportunity costs increase because resources are

not ubiquitous

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Production Possibilities Frontier for this example

January: 100 M & 2,000 F

February: 110 M & 1,900 F

March: 120 M & 1,500 F

Administrative Matters & Overview Economic Models Positive & Normative Production Possibilities Frontier

Production Possibilities Frontier, in general