See my web page and EC11 news on the upper right hand corner of the main web page (which also has
Technical Notes for Students and may be helpful at some points).
1. You need to sign up for the MyEconLab. There will be 11 homework assignments due each Sunday at
midnight, of which only 10 will be graded. The first one is actually not going to be due on Sunday 18
Jan but you should go ahead and submit it in case there are any glitches with the program. No late
homework is accepted by MyEconLab so you must submit by the deadline. The final deadline is Tues
the 20th at 11:59 for homework set one.
2. MyEconLab is a real resource. You should play around with it until you get the hang of all of its
features. You can really use it to study in the sense that it takes through the steps of solving a
problem and shows you where in the textbook the material is. For each homework plan to spend 2-3
hours. This is after spending 2 hours reading the chapter first. After turning in the homework you
should then go back and re-read the chapter for the fine points. It might look very different on the
second read. Following this procedure should result in a very high grade.
3. We talked about the economic way of thinking...using simple models to analyze complex phenomena.
Models can be expressed mathematically, graphically and in words. To know how to do an economics
problem thoroughly you must know all three.
4. The economic way of thinking is stylized, and not for everyone; it is often criticized as having a
libertarian bias political scientists, sociologist and other social scientists. You are to understand the
economic way of thinking in this class and not necessarily “believe” in it or integrate it into your world
view, political position, etc.
5. A basic tenant of the economic way of thinking is: “if an individual thinks he or she is better then he
or she is better off.” If some individual wants to smoke, then economics has no sound scientific way
of telling them they will be better off not smoking. This is a general rule and makes economics more
objective rather than normative. Look these terms up in Chapter 1.
6. The concept of Pareto optimality was introduced. Society is better off in Pareto’s sense if at least one
member is better off and no one is worse off. Society as a abstract entity, in economics, does not exist.
All economic well being must be resolved at the level of the individual.
7. Many policies hurt some individuals and help others; these are not Pareto optimal.
8. However, compensation is possible in Pareto optimality. We allow side payments to bring those who
are hurt back to their previous levels of happiness or utility. Who makes these payments? Those
who benefit from the policies. The compensation principle says that if those who are worse off can be
brought back to their previous levels of utility by those who are better off, and the latter are still better
off, then the policy is Pareto superior. One can say that society as a whole is better off.
9. Theft is not Pareto optimal. Yes, the thief if better off, but the victim is worse off. The thief cannot
compensate the victim and still be better off. Hence theft is not Pareto optimal, even if the their is
poor and deserving.
10. Markets can make people better off: We introduced the example of a prisoner of war camp, in which
the Nazis have Allied prisoners and given them a ration of one pack of cigarettes and one chocolate
each day.
11. The way we tell if an individual i is better off or not is to define a utility function
!
Ui = C1 , C2
where C1 is cigarettes and C2 is chocolate.
12. Another utility function for individual j might be
Uj = C1α , C21−α
where α < 0.5 indicates a stronger preference for chocolate (and weaker for cigarettes) and vice-versa
if α < 0.5 . Note that when α = 0.5, the second utility function is identically equal to the first one.
13. The Allied prisoners can be thought of as an economy. This is an example of an economic model.
14. Social welfare or utility is the sum of all individual utilities for all n prisoners.
S = Σni=1 Ui
15. Your assignment for Wednesday is to think about how trade between prisoners might increase S.
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