Introduction to Microeconomics: Course Overview and Core Concepts

About the Course

Instructor Background and Philosophy

This course is taught by Bruno Salcedo and is part of Economics 1021: Principles of Microeconomics at Western University. The instructor emphasizes a passion for science, math, and philosophy, and aims to improve the way economics is taught by focusing on clarity and relevance.

• Instructor’s Approach: Believes traditional economics education can be improved for better student understanding.

• Communication: Students should write "ECON2021" in the subject line when emailing.

How to Succeed in This Course

Grading Structure

Grades are determined by performance on multiple-choice exams and quizzes. The formula for the final grade is:

• Grade Formula:

$G = 0.10 \cdot \text{quizzes} + 0.25 \cdot \text{midterm}_1 + 0.25 \cdot \text{midterm}_2 + 0.4 \cdot \text{final}$

• Key Dates: Midterm 1 (Oct 5), Midterm 2 (Nov 16)

Recommended Study Practices

• Sufficient Conditions for Success: Read the syllabus, textbook, use MyLab, attend tutorials, maintain discipline, and supplement with YouTube resources.

• Class Attendance: Important for deeper understanding and to challenge common misconceptions (e.g., "Economics is wrong because humans are not rational" or "Taxes are bad because markets are efficient").

• Grade Expectations: Average grades are typically below 75, with about 40% of students scoring under 70.

Textbook

Required and Recommended Materials

• Primary Text: Parkin & Wade (2021), Microeconomics: Canada in the Global Environment, Pearson Canada, 11th Edition.

• Notes: Older editions are acceptable as they cover the same core topics. The newest edition includes access to MyLab.

Mathematics Requirements

Mathematical Tools for Microeconomics

Basic mathematical skills are necessary for understanding microeconomic models and analysis.

• Functions and Graphs: Ability to interpret and construct graphs of economic relationships.

• Line Equation: $y = mx + b$ (where m is the slope and b is the y-intercept).

• Slope of a Curve: Understanding how to calculate and interpret slopes, which represent rates of change.

• Maximums and Minimums: Identifying optimal points on curves, such as profit maximization or cost minimization.

• Calculus: Differential and integral calculus are helpful but not strictly required.

What is Economics?

Outdated and Modern Definitions

• Outdated Definition: Economics studies the production and allocation of goods and services.

• Key Questions:

  • What: Which goods and services do we produce?

  • How: Using land, labour, capital, human capital, and entrepreneurship.

  • For Whom: Determined by factor ownership and returns (rent, wages, interest, profit).

• Modern Definition: Economics studies how incentives affect choices in the face of scarcity.

• Key Concepts:

  • Choices: Made by individuals, groups, firms, governments, or algorithms.

  • Incentives: Rewards or penalties that encourage or discourage choices.

  • Scarcity: Resources are finite, so choices involve trade-offs.

Scarcity and Trade-offs

Time Allocation Example

Scarcity is illustrated by the allocation of 168 hours in a week among various activities.

• Example: A pie chart shows time spent on sleep, exercise, eating, chores, family, class prep, teaching, other work, transportation, and leisure.

Rational Agents and Decision-Making

Core Concepts

• Trade-off: Most choices involve weighing costs and benefits.

• Opportunity Cost: The value of the next best alternative forgone. There is no such thing as a free lunch.

• Benefit: Determined by subjective preferences, which may include altruism.

• Optimal Choice: The choice that maximizes benefit minus cost.

• Marginal Analysis: The optimal choice occurs when marginal benefit equals marginal cost.

Key Equation: $\text{Optimal choice: Marginal Benefit} = \text{Marginal Cost}$

Positive vs. Normative Economics

Types of Economic Analysis

• Positive Economics: Describes or measures the world as it is (objective analysis).

• Normative Economics: Prescribes policies or choices based on value judgments (subjective analysis).

Economic Intervention and Efficiency

Self-Interest, Social Interest, and Pareto Efficiency

• Self-Interest: The best choice for an individual or entity.

• Social Interest: The best choice for society as a whole.

• Pareto Efficiency: A situation where it is impossible to make someone better off without making someone else worse off.

• Alignment: Analysis of when self-interest and social interest coincide.

Braess’ Paradox and Traffic Networks

Introduction to Braess’ Paradox

Braess’ Paradox demonstrates that adding new roads to a traffic network can sometimes worsen overall congestion, while closing roads can improve traffic flow. This counterintuitive result highlights the importance of externalities and the need for economic modeling.

• Congestion Externalities: When individual choices impose costs on others, leading to inefficiency.

• Random Improvements: There is roughly a 50-50 chance that a random road improvement will worsen congestion.

• Real-World Examples: Studies and observations from cities like Sioux Falls, Boston, New York City, London, Winnipeg, San Francisco, and Seoul have documented such effects.

Key Takeaway: Economic models are essential for understanding and predicting the effects of interventions in complex systems like traffic networks.

Summary Table: Outdated vs. Modern Definitions of Economics

Aspect	Outdated Definition	Modern Definition
Focus	Production and allocation of goods and services	Incentives and choices under scarcity
Key Questions	What, How, For Whom	Choices, Incentives, Scarcity
Decision-Makers	Producers and consumers	Individuals, groups, firms, governments, algorithms

Additional info: Some content was inferred and expanded for academic completeness, including the summary table and clarification of mathematical requirements.