1. Introduction & Getting Started
Dr. Jennifer P. Wissink
©2011 John M. Abowd and Jennifer P. Wissink, all rights reserved.

2. About Economics & This Course
So what is this course about?
(And what is it not about?)
My working title:
Introduction to…
Applied
Microeconomic
Theory.

3. Introduction to… Applied Microeconomic Theory
We will construct models.
Look at the world;
Hypothesize a model;
Analyze the model;
Use the model to make predictions;
See if the model holds up under empirical scrutiny.

4. Introduction to… Applied Microeconomic Theory
Economics
Classic definition: The study of the allocation of scarce resources to produce commodities to satisfy infinite human wants.
Economics is about constrained optimization; choice under conditions of scarcity.
Microeconomics
Looking at small pieces of the puzzle, individual markets (as opposed to macro - which looks at the big picture).
Three basic traditional micro questions
What?
How?
For Whom?

5. Micro Macro Examples of Microeconomic and Macroeconomic Concerns
BRANCH OF ECONOMICS
PRODUCTION
PRICES
INCOME
EMPLOYMENT
Micro
Output in individual industries How much steel? How much office space? How many cars – big or small, how fuel efficient?
Price of individual goods and services Price of medical care. Price of gasoline. Food prices. Apartment rents.
Distribution of income and wealth Wages in the auto industry. Minimum wage. Executive Salaries. Poverty.
Wage differentials.
Employment by individual businesses and industries Steel industry jobs. Number of employees in a firm. Number of accountants.
Macro
National production/output Total output: GDP Output by sectors. Investment. Growth of output.
Aggregate price level Consumer prices. Producer prices. Rate of inflation. Interest Rates.
National income Total wages and salaries. Total corporate profits.
National savings.
Employment and unemployment in the economy Total # of jobs. Unemployment rate Productivity growth

6. Introduction to… Applied Microeconomic Theory
We will apply what we learn to real world situations.

7. Why Study Economics? It’s everywhere. It’s unavoidable.
It’s a requirement and a prerequisite for understanding lots of other material.
To help you understand how economists think and construct arguments.
To understand how markets work.
To help you differentiate good from bad analysis.

8. Risks to Avoid

9. On Modeling & Constructing Theories
Simplistic Model Construction
Ockham’s Razor
Evaluation of Models
economics is a social science
Two pitfalls to avoid:
the “fallacy of composition”
“post hoc ergo propter hoc” mistakes
Positive vs. Normative analysis
What is
What ought to be
William of Ockham 14th century philosopher