1. Introduction and Supply & Demand

Summary

Key Points

• The microeconomics course will incorporate a distinct policy angle, using government policy as an organizing theme, and encourages active student engagement and questions. 1:07
• Microeconomics is fundamentally defined as the study of how individuals and firms make decisions in a world of scarcity, involving a series of constrained optimization exercises. 3:43
• A critical concept in economics is opportunity cost, which posits that every action or inaction has a cost in terms of the next best alternative that could have been pursued. 5:24
• Economic models, while simplified and never 100% true, are useful tools designed to capture broad phenomena and will be understood intuitively, graphically, and mathematically. 8:53
• The foundational supply and demand model, exemplified by Adam Smith's water-diamond paradox, demonstrates how market equilibrium is reached where consumer demand and firm supply intersect. 11:45
• The course distinguishes between positive analysis, which describes "the way things are," and normative analysis, which addresses "the way things should be," using the controversial example of selling kidneys. 16:50
• While standard economics often suggests that "the market knows best," the course will also explore market failures, equity concerns, and behavioral economics that challenge this view. 26:23
• The lecture contrasts capitalist economies, driven by individual and firm self-interest and leading to growth but also inequality, with command economies, where the government makes all production and consumption decisions. 26:46
• The course will progress by first detailing how Adam Smith's "invisible hand" creates a productive economy through utility maximization and firm production, then examining how these principles break down in reality. 33:05