1. Lecture 2 Economic Models
Dr. Jennifer P. Wissink
January 29, ©2018 Jennifer P. Wissink, all rights reserved

2. Announcements-micro Spring 2018
Cornell has posted all final exam dates!
See:
Econ 1110 Wissink’s is Monday May 21 at 9:00am
That’s late!
See Blackboard for announcement about your options!
Basically it’s either Thursday May 17 at 9am OR Monday May 21 at 9am.
The first MEL Quiz towards your 600 magic number of MEL points has been assigned.
Make a habit of checking the MEL site regularly for what’s been assigned and when a quiz is due.
Make sure to see FAQs folder on Blackboard if you have MEL questions. Lots of answers there already.
Also make sure to read the one announcement I have posted on the MEL site itself.

3. i>clicker questions
What part of Cornell?
CAS
ILR
CHE
CALS or Hotel
Engineering or CAAP
What part of US?
Northeast
Midwest
West Coast
The South
Not from the US
If not from the US, what part of the world?
Canada
Europe
Asia & Down Under
South&Central America
Africa
How much do you like using math outside of math classes?
Love
Hate
Don’t love, Don’t hate
Don’t know, we’ll see
Have you already taken intro macro?
Yup.
Nope.
Are you a morning person?
No!
Yes!!

4. Econ 1110 Introductory Microeconomics
So what is this course about?
(And what is it not about?)
My working title: Introduction to Applied Microeconomic Theory
Theory: We will construct models.
Look at the world, hypothesize a model, analyze the model, use the model to make predictions and then see if the model holds up under empirical scrutiny.

5. Applied Microeconomic Theory
Economics: The study of the allocation of scarce resources to produce commodities to satisfy infinite human wants.
Classic definition. Economics is about constrained optimization. Choice under conditions of scarcity.
Micro: 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? and For Whom?

6. Macro v Micro in the News
More Macro-ish:
Data on Europe’s Economy, Job Numbers and Janet Yellen’s Goodbye
More Micro-ish:
The Subway Is Next Door. Should New Yorkers Pay Extra for That?

7. 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

8. Applied Microeconomic Theory
Applied: We will apply what we learn to real world situations.

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

10. On Modeling & Constructing Theories
Simplistic Model Construction
Ockham’s Razor
Evaluation of Models
economics is a social science
Two pitfalls to avoid
not recognizing the “fallacy of composition”
using “post hoc ergo propter hoc” logic
Positive vs. Normative analysis
What is versus
What ought to be
William of Ockham 14th century philosopher

11. A Road Map Suppose I want to get you from here to Cortland.
How about we draw a map.