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Topic 0: Introduction

Georgy Artemov1
1 Department

of Economics, University of Melbourne

ECON30010 - Semester 1, 2016

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Organisational details

Personnel and Responsibilities, 1

Instructor: (Georgy Artemov)


Ask me questions about the material: lecture notes, tutorials, questions in
or solutions for the assignment.
Head Tutor: (Wasana Karunarathne)
Ask Wasana administrative questions: your marks on the assignment,
problems submitting an assignment, or submitting it on time, missing
assignments, missing information on the LMS, etc.

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Personnel and Responsibilities, 2


Tutors:
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Tutors will primarily answer questions about tutorials

You can ask them questions about lectures and assignments, but many of
these will be passed to me. They probably be answered through the online
tutor. This is to ensure consistency across tutorials.

None of us can answer such questions as:


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Can I switch tutorials? You can do it online before 18 March at


http://ask.unimelb.edu.au/app/answers/detail/a_id/6036;
Wasana cannot re-allocate tutorials;

Can I have an extension? You need to lodge a request here


http://go.unimelb.edu.au/yh9n or apply for special considerations here:
http://students.unimelb.edu.au/admin/special.

Most other things we cannot do could be done by visiting


students.unimelb.edu.au/stop1
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Communication: LMS and Online Tutor

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We use LMS to communicate all the important information.


We use online tutor to answer common questions about the material.
It is really important to ask questions that you think are of interest to
everyone.
I Coming up with questions is important for your learning; hence, just
looking at what other people have asked may help you with the
material.
I If there are too many questions in online tutor, it becomes impossible
to browse them
We will not necessarily answer all questions. Please do not be upset
about it; we just need to keep this resource useable for everyone.
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Communication: Math reviews

We use math reviews to help you with math.


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They are not mandatory;


They are not extra tutorials; it is more like an extra consultation hour
designed for math;
You come and solve problems that are posted in advance;
Do not expect that all solutions will be posted online. We will post
answers to some problems, especially these that proved to be
particularly challenging;
They are designed for students who struggle with math in this course.
If you do not, you are unlikely to benefit;
Nothing that happens in math review will be tested on the exam (more
on that later).

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Textbooks: main
The main textbook for this subject is Hal
Varian, Intermediate Microeconomics with
Calculus a Modern Approach 1st Edition
International Student Edition
You can buy a hard copy from coop for
AUD125
Or you can buy an electronic copy from the
publisher for AUD55.
http://au.wiley.com/WileyCDA/
WileyTitle/productCd-EHEP003532.html

I have an electronic copy. It requires you to install VitalSource app and I


find this app to be worse than Kindle (it keeps wide original hardcover book
margins; why??? and I dont know how to solve this problem). But I think the
electronic copy is a better deal anyway.
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Textbooks: Should you buy it?


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Unfortunately, there is no textbook that suits this subject well. The


common problem is that almost all level-3 textbooks are just extended
versions of level-2 textbooks, so they repeat a lot of material that you
have already covered in your ECON20002, but with a bit more math.

Varians textbook suffers from exactly this problem, but it does have
some nice applications that I intend to look at. However, for these
that we cover, we will go much deeper. So, Varians textbook, like
any other textbook, would be of limited use exactly when you need it
the most. Sorry Varian is the best match I could find.

Will you use it? Not nearly as much as you used your textbook in
ECON20002, but I think it will provide a useful reference and a guide.
One thing I have kept in mind looking for a textbook is the cost: buying a
very expensive textbook and using it sparingly is very annoying, but e-copy
downloadable to four devices for AUD55? Maybe it is ok.
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Textbooks: Supplementary
Another textbook I recommend is Roberto Serrano and Alan Feldman, A
Short Course in Intermediate Microeconomics with Calculus.
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This is the only textbook I know that have been written from scratch
with your level in mind. It does repeat some level-2 material, but that
repetition is at the necessary minimum.

However, the problem in this book is insufficient range of applications.

This problem aside, I expect a few people may like it better than
Varian. I will try to reference Serrano-Feldman whenever it is possible.

It is also available as e-copy from Amazon for about AUD50:


http://www.amazon.com.au/
Short-Course-Intermediate-Microeconomics-Calculus-ebook/dp/
B00A8GYNOK/

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Papers

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home : Library
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use quite a few of real journal articles in teaching ECON30010.


http://library

I will give you the names of the articles and publishing details;
You can easily find and access them through the library website:
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Go to library.unimelb.edu.au,
Combined search of the catalogue,
digital collections, ebooks and some databases

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,
then find the search field
Individual ejournals and databases
then the system will prompt you to log-in to access the article.

You are not required to read them to do well on exam.

However, I do hope that you will find some topics from the articles
that I cover interesting and then go to the original source. I always
simplify the presentation for teaching, but I also always select the
articles that I think are accessible (or at least have a simplified
example at the beginning of the article that is meant to capture the
essence of the general model). I hope you will enjoy some of them.
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Lecture slides
Lecture slides are not a book.
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They do not contain all the details that textbook would contain (you
would hate my slides if they did).

You should not expect to be able to study using lecture slides alone
(e.g. without attending the lectures or listening to a recording). I do
expect that you will consult a textbook if you feel that a particular
topic is difficult.

You should use lecture slides as a guide to what has been covered on
lectures.

Lecture slides are organised by topics, not by lecture numbers. For


example, Topic 1 will last longer than just todays Lecture 1.

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Assessment

35%: 5 homework problem sets:


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The due dates are posted on the LMS;


Some problems are similar in difficulty to the final exam problems;
these will be marked;
Some problems are much more difficult than the final exam;
Remember that all submissions must be independent.

65%: final exam.

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Final exam: materials


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You will NOT be allowed to bring calculators to the final exam.


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And you will not need them.

You will be allowed to bring 10 two-sided A4 pages to the final exam.


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These pages must have your name and your ID number in


the right-top corner. Please be careful: any page that does
not have this information may be considered an
inappropriate material and lead to much trouble;

You can have whatever you like on these 10 pages;


handwritten, or printed, or both;

Keep in mind, though that you cannot bring a microscope


to the exam.

Tutors will not know the content of the final exam; please do not
second-guess from their answers what will be on the final exam.
Moreover, the material has change substantially from the previous
years, so if someone claims that she knows any questions or any
answers, you would need to inquire whether she is Ms. Trelawney.
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Final exam: coverage


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The final exam is based on everything that is in the lecture slides,


tutorials and assignments

Nothing else will be explicitly tested

How should you understand it?


When I write exam problems, I will have lecture slides, tutorials and
assignments in front of me. I will not have a textbook, the materials from
math review or anything else in front of me. It is possible that I will come
up with a problem that is similar to textbook (Varians or any other
textbook for that matter), but it would be purely by chance.
Close to the end of the semester I will release some sample problems.
These are the combination of some past problems (we have a very limited
sample, because I have changed the course from the last year a lot) and
the problems that I wrote for the actual final exam, but decided that some
other problems are better.
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The philosophy of this subject

Level 1 and 2 courses

In levels 1 and 2 you have seen a lot of microeconomics. You know


what the optimal behaviour of an agent in the market is, how market
form the prices and what not. You know a lot of facts, such as that
optimal consumption of junk food is where MRSJF = PJ /PF .

These facts are derived from specific models. Models take into
account the most important aspects of a situation and abstract
away less important aspects.

However, in a real life situation some less important aspects may


suddenly become critically important. The course will be peppered
with examples; here is one:

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The philosophy of this subject

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Example
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Suppose that two firms compete in prices (such as in Bertrand


model), but need to build the production capacity first.

If you just rely on the results from the standard model, you cannot
say much: the fact that a firm may undercut the other firm and not
be able to serve the whole market is critical in your situation, but not
present in the model.

You need to know how to adjust Bertrand model to obtain a sensible


result.

Writing the models, or adjusting the existing models (which is really the
same thing) is what I want us to practice in this subject.

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The philosophy of this subject

Philosophy of this subject: motivation


I will use Susan Atheys answers on Quora to motivate
what I am trying to achieve in this subject.
Susan Athey is one of the most famous academic economists. She is also a
board member of Expedia, Ripple and CoinCentre and advised a number
of companies.
On Quora she answered such questions as why tech companies are hiring a
lot of economists nowadays and what is economists bring to these
companies.
You can read complete answers here:
http://goo.gl/ubkhrZ
http://goo.gl/XjlDIs
http://goo.gl/SN2WGO
Excerpts are on the next slide.

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The philosophy of this subject

Excerpts from Susan Atheys answers


In general, economists have a comparative advantage at coming up
with new conceptual insights, frameworks, and useful abstractions of a
complex world that help organize thinking. [. . . ] Thousands of data
scientists are being trained every year [. . . ] but they are trained more
in the application of techniques, rather than how to frame a question
or how to map a question into a statistical approach. Economists are
ultimately question-driven, and that is a key skill for both research and
policy impact.
[. . . ] I think economists provide much more value [. . . ] when the world
is changing. If e-commerce and search engines had been around 150
years, then a consulting firm like McKenzie could come in and give best
practices [. . . ]. It is exactly when the conceptual framework hasnt
been invented yet, when there is no conventional wisdom about how to
manage the AirBnb marketplace, when a brand new auction needs to be
invented beyond what has ever been done before (spectrum auctions)
that the worlds best economists (and economists-as-engineers) shine.
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The philosophy of this subject

Take-away from Susan Atheys answers


Note that nowhere in these quotes (as well as in full answers) she says
that economists are useful because they know some models. She says that
they are useful because they can formulate the models.
In this subject, we will try to take some steps in this direction.
Economics gives us a guide how to formulate the models and provide tools
how to solve these models. Such a guide and the tools can be applied to a
variety of situations, including these that seem to have nothing to do with
economics, such as:
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How to allocate students to schools efficiently?

How to take overtime penalty kicks or possession of a ball in football


fairly?

What is the best rating system for AirBnb or Uber?


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The philosophy of this subject

Final exam advice again: methods vs. results


All this sound great, but some find this approach really scary when
thinking about assignments and, especially, the final exam. There are two
reasons for that.
First, since we focus on methods/processes rather than results,
memorisation does not really help. It is very difficult to memorise the
method if you do not understand it; a very small change will send you
off-track.
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Some of you have perfected studying techniques in which


memorisation is an important aspect. These studying techniques
wont be useful in this subject.

You may expect to find an answer to a homework problem in lecture


notes or tutorials. It wont be there: the method will be there, but
the model is slightly different hence the actual answer may be
completely different.
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The philosophy of this subject

Final exam advice again: multiple answers

The second reason is that my questions often allow for several answers.
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It would not be scary if they were essay-type questions, where you


know that the answers (essay) cannot possibly be the same. But I will
sometimes ask math-sounding questions that would have several
correct answers. That does not feel right to some people.

However, the reason why I need this is simple: we are learning to map
real life into models. This means we identify important aspects and
leave out unimportant ones. That choice need not be unique.

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Final exam: what to include in 10 pages


I would think about these 10 pages as an insurance policy. It is also a tool
to stamp out the memorisation in this subject.
You do not have to have any formulae handy: if I want to ask you about
formula, I would not ask you to write the formula. I would write the
formula for you and ask you about its interpretation. So, there is no need
to include every possible formula in this course on these 10 pages. That
will not be tested.
You cannot include every variation of the model in these 10 pages. You
would need about 10,000 pages for that.
However, sometimes you can find that there is a particular detail of a
model that is not very intuitive for you. You may want to put it in,
because you are more likely to forget things that are not intuitive.
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