Week 1:

What is Economics? &

What is ECO101?
ECO 101: INTRODUCTION TO MICROECONOMICS
UTM Land Acknowledgement
◦ “I wish to acknowledge this land on which the University of
Toronto operates. For thousands of years it has been the
traditional land of the Huron-Wendat, the Seneca, and the
Mississaugas of the Credit. Today, this meeting place is still the
home to many Indigenous people from across Turtle Island and we
are grateful to have the opportunity to work on this land.”
This Week’s Class
◦Lecture:
◦ What is Economics (generally)?
◦ Introduction to the class & syllabus.
◦ What is a (modern) Economy?
◦ What do Economists (generally) do?
◦ How do Economists think about scarcity?
◦Tutorial:
◦ Practice with Budget Constraints
◦ Practice with Production Possibilities Frontiers (PPFs)
What is Economics?
◦ Economics is the study of how we manage unlimited wants in a
world of limited resources.
◦ We live in a world of scarcity.
◦ This scarcity forces us to make choices.
◦ Example: food versus shelter.
◦ Economics is ultimately the study of this decision-making process.
◦ Economists study people’s constraints and incentives and use this
to predict behaviour.
◦ Microeconomics is the study of household- and firm-level decision
making.
Learning Goals
1. Learn the foundational economic models
◦ Supply & Demand and Firm Behaviours.
2. Prepare you for 2nd Year Economics Courses.
3. Use these economic tools to predict the impacts of government
policy or world events on markets.
4. Identify how these core economics concepts are recognizable
and actually impact the world around us.
Ground Rules for Discussion
◦Please be appropriate. Do keep others’ comfort in mind.
◦It is fine to respond to each others’ points, but address the
points, not the person.
◦Avoid generalizations. Focus on personal experiences and
evidence.
◦Be respectful to each other. Be constructive. This is
supposed to be fun!
◦Wait until called upon to avoid speaking over others.
Aaron will manage the discussions in class.
Piazza
◦ We need to be efficient in making this work. A (general) guide:
1. Try Piazza first.
2. Then office hours.
3. Reach out via email.
◦ If you want to help out and answer – thank you very much!
◦ Please no trolling. Be thorough and helpful.
◦ Focus on the question – this is not a chat room!
◦ Piazza is appropriate for course material and logistics.
◦ Piazza is not for comparing answers or seeking help with homework
questions.
◦ Aaron & The TAs can see who you are, even if you post as anonymous.
Assignments & Exams
1. 1 Final Exam (40%)
2. 2 Midterms (30%)
3. 5 of 6 Problem Sets (10%)
4. 9 of 11 Discussion Posts (6%)
5. 9 of 11 Tutorial Quizzes (7%)
6. 10 of 12 Sets of MyLabs Practice Problems (7%)
Three Exams (70%)
◦ Two exams in the course:
◦ 2 Midterms (30%): Saturdays, 22 Oct & 26 Nov, 9am – 11am.
◦ Final Exam (40%): Final Exam Period (2 hours – TBD)
◦ These exams will be administered in person on campus.
◦ If you miss a midterm, need to follow instructions in the syllabus.
◦ This is so important – if you do not do this, we cannot excuse you.
◦ This is a university thing – it is more complicated than me just telling you it’s
fine.
◦ If absence approved, the midterm weight will be re-weighted onto the Final.
Tutorial Quizzes (7%)
◦ Tutorials begin this week!
◦ Please do only attend the tutorial that you enrolled in.
◦ Attending tutorials are necessary for success in this course.
◦ Great practice on the longer, harder questions on the exams.
◦ Also, a good way to meet classmates.
◦ You will meet with one of the Teaching Assistants for an hour.
◦ Solve longer problems with TA and then work on them in groups.
◦ You will then complete a Tutorial Quiz (7%) on the school-day afterwards.
◦ The quiz will contain a problem very similar to what you solved in tutorial.
◦ Tutorial quizzes are administered on Quercus, and only available on
Tuesdays from 5pm – 10pm. You are given 20 minutes.
Problem Sets (10%)
◦ There will be a longer homework due every week.
◦ These Problem Sets include longer and harder problems.
◦ Great practice for exams.
◦ Can be completed in groups – opportunity for group study.
◦ Opportunity for us to see your work.
◦ Must be uploaded to Crowdmark for grading.
◦ Maximum group size of 4. (No exceptions – sorry!)
◦ Instructions on uploading to Crowdmark included in Problem Set entries on
Quercus.
◦ 35% per day late penalty.
◦ Lowest grade of 6 dropped.
Discussion Posts (6%)
◦ After each week, you will be assigned a podcast to listen to
illustrate how the concepts we study apply to the real world.
◦ Afterwards, you will be asked a general question or discussion
prompt.
◦ For full credit:
◦ Write perhaps a paragraph on the prompt.
◦ Respond to at least two of your classmates’ posts.
◦ This is not meant to be onerous. If it is clear you listened to the
podcast and were thoughtful, you will get 3/3.
◦ Go for a walk!
◦ Discuss with your classmates!
MyLab Practice Problems (7%)
◦ Due weekly on Fridays (First 16 Sept).
◦ Access them through Quercus: “MyLab Week # Problems” entries.
◦ Not meant to be time consuming
◦ 10 – 15 questions.
◦ Basic concepts - good preparation for Short Answer section on
exams.
◦ MyLab subscription and sign-up through Quercus required.
◦ Note: MyLab also has the “Mastering” section, accessed through
the “Study Plan” area in MyLab.
◦ Large bank of practice questions.
◦ Might be useful, but not assigned, set, or vetted by me.
Academic Integrity
◦ We are still online, which brings its own challenges.
◦ I want you to be able to meet your classmates and work with them.
◦ You should study together – this is why you can do your problem sets in groups.
◦ I know there’s plenty of online chats.
◦ The sharing of answers is strictly forbidden.
◦ Sharing problem set answers outside of your group before the due date is
forbidden.
◦ Sharing Quiz of Exam answers during test times is also forbidden.
◦ UTM has a very defined process for dealing with academic integrity
issues.
◦ All I can say is that I will pursue any academic integrity issues as far as possible
through UTM’s system.
Recipe for Success
◦ This course is lots of work, but it is designed to get you across the
finish line.
◦ Come to Lecture and Tutorials.
◦ This is more efficient than self-study.
◦ Read the text – 2 hours per week.
◦ Do the practice problems. Do the tutorial quizzes.
◦ These are low stakes, but if you keep up with them, you’ll find yourself very
well prepared when it comes crunch time for exams.
◦ Seek help and ask questions. We are here to help!
◦ Come to Office hours!
 Questions &
(Hopefully) Answers
The Circular Flow Economy
 A Means of Exchange
◦ Facilitated by a Means of Exchange (i.e. Money!).
◦ What is the role that money plays in the economy? What is the
alternative?
◦ What are the limitations of a bartering system?
◦ What needs to be the case for a currency to be an effective means
of exchange?
1. Durability 4. Uniformity
2. Portability 5. Limited Supply
3. Divisibility 6. Acceptability

Source: https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-9-functions-of-money
How Do These Economies Come Together?
◦ Chronicled by Adam Smith in The Wealth of
Nations in the 18th Century.
◦ Local economies are self-organizing.
◦ Driven by self-interest (no central entity)
◦ Often referred to as the Invisible Hand.
◦ People are driven by self-interest.
◦ Outcomes are generally efficient.
◦ What does this mean in Economics?
◦ What does this not mean?
How Does The Invisible Hand Work?
◦ The invisible hand is another term for market forces.
◦ Market players (consumers and sellers) are driven by self-interest.
◦ The important thing about markets is that they adjust.
◦ Prices are a critical market mechanism.
◦ When there is an abundance (shortage) of a good – prices drop (rise).
◦ People do not consume less during a shortage out of kindness – they are
incentivized to do so by higher prices.
◦ Back to the sandwich: You buy the bacon from a pig farmer you
have likely never met.
◦ Your transaction is coordinated by the market.
◦ Our engagement in the market is driven by the prices we face.
The Modern Market Economy
◦ What explains this (striking) difference?
The Division of Labour
◦ Free markets are often characterized by Specialization & the
division of labour.
◦ Why is this important?
◦ Important economics ideas make Specialization critical:
◦ Comparative advantage.
◦ Economies of scale.
◦ Learning by doing.
◦ Requires large (& thick) markets.
◦ The market coordinates large amounts of actors.
(General) Types of Economies
◦Distinction between different economy models:
1. Market Economy
2. Planned (Command) Economy
3. Mixed Economy
4. Traditional Economy
◦Textbook has quick discussion into “The Great
Debate” of the 20th Century and some historical
context. (Sec 1.3, pp. 17 – 19)
The Role of an Economist
◦Positive Statements: how the world is.
◦Normative Statements: how the world should be.
◦Which is a positive statement?
◦E.g. Canada can decrease economic inequality by …
◦E.g. Canada should decrease economic inequality by …
◦Economists (typically) are called to make positive
statements.
Example: Do Sumo Wrestlers Cheat?
1. Theories/Framework
2. Predictions
3. Empirical Testing
4. Conclusions

Source: This (great) example comes from the book “Freakonomics”.

10-minute Break
We are all Constrained
◦Recall Economics is about managing unlimited
wants with limited resources.
◦People make choices subject to their constraints.
◦We will do our first Economics, and work with two
important tools:
1. Budget Constraints (BCs)
2. Production Possibilities Frontiers (PPFs) (or Boundary)
The Budget Constraint
◦Suppose that:
◦ A household has a set amount of income (Y = $100).
◦ A household wants to spend it on two goods:
◦ Good 1: Sweaters
◦ Good 2: Hats
◦ Each of these goods costs money:
◦ Sweaters cost pS
◦ Hats cost pH
◦ How does a household think about this problem?
 What is a Budget Constraint? Suppose that:
- Income = $100
Sweaters What Combinations are Affordable?
- pS = $20
- pH = $10

Hats
Direct & Opportunity Costs
◦The Direct Costs are the physical cash you need to pay to
buy a good.
◦ What was the direct cost of a sweater in our example?
◦ What about the direct cost of a hat?
◦The Opportunity Costs are the next-best thing you give up
to buy a good.
◦ The direct costs of a sweater is $20 and a hat is $10.
◦ What is the cost of a sweater in terms of hats? (i.e. not money)
Opportunity Costs Example
◦Suppose that we are thinking about this university degree.
◦What are some of the Direct Costs?

◦What is the Opportunity Cost?

◦The opportunity cost is all about the counterfactual.

◦ What would you be doing otherwise?
 What does it mean to move along the budget constraint? Suppose that:
What is the slope of this budget constraint? - Income = $100
Sweaters - pS is $20
- pH = $10

Hats
◦Tariff increase on
sweaters.
◦Effective increase in
sweater prices.
◦Suppose that:
◦pS increases to $25.
◦How does this affect
a household’s
budget constraint?
 Suppose that:
- Income = $100
Sweaters - pS was $20
- pS is now $25
- pH = $10

Hats
 What happens to the budget constraint if the Suppose that:
prices stay the same, but income doubles? - Income was $100
Sweaters - Income is now $200
- pS is $20
- pH = $10

Hats
 Suppose that:
- Income was $100
Sweaters - Receive an additional
$20 for only hats
- pS is $20
- pH = $10

Hats
The Budget Constraint
◦A really useful tool.
◦Fundamental piece to Micro models everywhere.
◦Still parts of models on the very forefront.
◦We will return to this concept.
◦Eventually will put some more theory to think about
how households pick which feasible combination to
choose.
The Production Possibilities Frontier
◦Another core economic concept.
◦Used to define the set of all things that an economy
can produce.
◦Typically the model has 2 goods.
◦If an economy was able to rally all of its resources
and act completely efficiently, exactly how much
stuff could it actually produce?
◦The answer is the PPF.
The Production Possibilities Frontier
◦Suppose that an economy can produce two goods:
◦Good 1: Milk
◦Good 2: Butter
◦Both of these goods can be produced by combining
the (limited) production inputs available.
◦The PPF will outline all of the possible combinations
that can be produced.
 What is the PPF and why is it shaped as it is?
Milk
Which combinations of Milk and Butter are feasible & efficient?
How Does Opportunity Cost Work with the PPF?
What Can We Think About with PPFs?

Butter
 What would we expect to happen to the PPF if the economy
Milk Became (generally) more productive?
What would we expect to happen to the PPF if the economy
Became (specifically) more productive?

Butter
Theory: Graphing and Lines
◦We will be doing a lot of theory similar to the
Budget Constraint and PPFs we covered today.
◦Knowing some of the math around these lines will
be critical.
◦Section 2.4 in the Textbook is a great review.
◦Week 1 Tutorial will practice working with these
tools as well.
◦MyLabs Mastering has a math review too.