9/3/2019

Lecture 1:
Introduction to Economics and Ec 10

Jason Furman &

David Laibson

Ec 10a – Principles of Economics (Microeconomics)

September 4, 2019
Harvard College | Cambridge, MA 02138

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Jason Furman ‘92

• Policy-oriented research on inequality, taxes,
competition, international economics and
more.

• 10+ years in the White House

• You’re welcome to follow me on

Twitter @jasonfurman

• Walk-in OH Wednesdays 2-3,

Littauer 317 & also by appointment

• jason_furman@harvard.edu (he/him/his)

David Laibson ‘88

• Faculty Dean of Lowell House

• Previous Chair of the Department of

Economics

• Research on psychology and

economics, procrastination, self-
control, behavior change

• Walk-in OH Thursdays 11:30-12:30,

Littauer M-12; & also by appointment

• dlaibson@harvard.edu (he/him/his)

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Outline

1. What is Economics?

2. Why Study Economics?

3. The Positive-Normative Distinction

4. What You Need to Know About Ec 10

Outline

1. What is Economics?

2. Why Study Economics?

3. The Positive-Normative Distinction

4. What You Need to Know About Ec 10

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1. What is Economics?

According to Lionel Robbins

“…the science which

studies human behavior
as a relationship
between ends and
scarce means which
have alternative uses.”

Source: Robbins (1935) in Backhouse and Medema (2009); Wikipedia.

1. What is Economics?

According to Janet Yellen

“Economics is a subject
that really relates to
core aspects of human
well-being, and there’s
a methodology for
thinking about these
things.”

Source: Yellen in Lemann (2014); Wikipedia.

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1. What is Economics?

According to Joan Robinson

“The purpose of
studying economics is
not to acquire a set of
ready-made answers to
economic questions, but
to learn how to avoid
being deceived by
economists.”

Source: Robinson (1978); Wikipedia.

1. What is Economics?

According to Jacob Viner

“Economics is
what economists
do.”

Source: Viner in Backhouse and Medema (2009); Journal of Political Economy (1972).

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1. What is Economics?

Here is some of what economists do these days

The latest issue of the Quarterly

Journal of Economics, one of the
scientific journals economists use
to publish and share their ideas,
has new research on:

• Rate of return on assets

• Minimum wage and employment
• Education and “grit”
• Gender bias in the classroom
• Education in Tanzania
• Lobbying in health policy
• Missing Bronze Age cities
Source: Quarterly Journal of Economics (August 2019).

1. What is Economics?

Our working definition in this course

Economics is the study of how

agents allocate scarce resources
and how those choices affect
society.

Note: “Agents” can be people but also

families, firms, etc.

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Outline

1. What is Economics?

2. Why Study Economics?

3. The Positive-Normative Distinction

4. What You Need to Know About Ec 10

2. Why Study Economics?

Why study economics (1)

Satisfy our curiosity about the social world

Source: Astronimus.com.

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2. Why Study Economics?

Why study economics (2)

Help make better decisions in our personal

lives:

• Pick a credit card (value “points”)

• Get the best deal on a home mortgage
• Decide whether to buy insurance on your phone
• How to split the bill at lunch
• How to stop procrastinating
• How to get yourself to workout more

2. Why Study Economics?

Why study economics (3)

Help make better decisions in our jobs:

• Be a more productive worker

• Design and price new products
• Undertake research and development
• Allocate capital
• Design good benefits systems (e.g., health,
retirement, disability) for employees

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2. Why Study Economics?

Why study economics (4)

Become better citizens by better understanding
public policy—and help make it too!
Chrstina Romer, former Chair of the
Council of Economic Advisers
“I don’t care who writes a
nation's laws—or crafts its
advanced treatises—if I can
write its economics textbooks.”
–Paul Samuelson

Ceci Rouse, former Member of

the Council of Economic
Advisers—and Ec 10 guest
lecturer on November 25.

Outline

1. What is Economics?

2. Why Study Economics?

3. The Positive-Normative Distinction

4. What You Need to Know About Ec 10

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3. The Positive-Normative Distinction

What is positive and normative?

Positive: “Describes what people actually do.”

• Can aspire to objectivity. Can make predictions, test

them, and prove statements correct or incorrect.

Normative: “Describes what people, including

society, ought to do.”

• Inherently subjective, depends on your values. But

can aspire to be more explicit about these values
and their logical implications.

3. The Positive-Normative Distinction

How this works for an individual

Positive statement: The average household age 45-54 saves X
percent of its income.

Normative statement: The average household age 45-54 ought to

save more.

Normative recommendations for individuals often respect their deep

preferences—“de gustibus non est disputadem”

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3. The Positive-Normative Distinction

For society this is trickier because people have

different values

• Should everyone work?

• Do people have a right to a certain standard of
living?
• Should people get to keep as much as possible
of what they earn?
• Do high incomes for some make others worse
off?

All economic policy recommendations reflect a

combination of positive and normative views.

3. The Positive-Normative Distinction

There was a wide divergence in the public

debate about the 2017 tax law

“And all of this — everything in

here — is really tremendous things
for businesses, for people, for the
middle class, for workers.”
– Donald Trump
December 22, 2017
“…the worst bill in the history of
the United States Congress.”
– Nancy Pelosi
December 4, 2017

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3. The Positive-Normative Distinction

Economists also disagreed on the law…

“…cutting income taxes on individuals “Unfortunately, the cost of this ill-

will power economic growth in the
short run, and reforming them for
businesses will do the same over the
long haul.”
– Robert Barro
January 4, 2018, Wall Street Journal
advised reform will eventually be paid
by future generations of American
taxpayers.”
– Jason Furman
November 8, 2017, Wall Street Journal

3. The Positive-Normative Distinction

…But came to agree on the positive impact of

the law

Source: Brookings Papers on Economic Activity (Spring 2018).

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3. The Positive-Normative Distinction

Why economists might differ on the tax law?

Positive issues
• How much will growth increase/decrease?
• How much will the tax law increase the Federal budget
deficit?

Normative issues
• Do high-income households deserve to keep as much as
possible of what they earn?
• Should public policy aim to reduce inequality?
• How do we weigh the benefits and harms to future
generations against those to present generations?

3. The Positive-Normative Distinction

What economics aspires to do

1. Be precise about roles of positive and
normative analysis:
o Is the difference over the minimum wage about
positive issues (e.g., how raising it will affect
employment) or normative issues (e.g., the right
to make contracts)

2. Think objectively about the positive aspects.

3. Be explicit about the deeper normative

underpinnings and their implications (theories
of justice).

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3. The Positive-Normative Distinction

Now let’s see what you think

• Take out an electronic device (phone, tablet or laptop).

• Two ways to join:

• Website: Go to PollEv.com/ec10
• App: Open Poll Everywhere app and join
PollEv.com/ec10 presentation

• Questions will show up automatically, just select your

response on your screen

3. The Positive-Normative Distinction

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3. The Positive-Normative Distinction

3. The Positive-Normative Distinction

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3. The Positive-Normative Distinction

Do economists agree?

• Economists agree on positive issues more than you

might think. Where they disagree, the disagreements
are generally narrower than in the public debate.

• Differences still remain on many positive issues. The

hope is that further research will narrow those
differences—but this can be hard.

• Economists, just like the public, have widely varying

normative views.

Outline

1. What is Economics?

2. Why Study Economics?

3. The Positive-Normative Distinction

4. What You Need to Know About Ec 10

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4. What You Need to Know About Ec 10

Who should take Ec 10?

Our almost-serious answer: all people.
• If you never take an economics class again: Ec 10 will give
you tools to make better decisions throughout your life and to
understand the major social issues that our society confronts.

• If you choose to do more economics after this course: Ec 10

is the gateway. This course will build your intuition and give
you a foundation.

• AP economics is typically not a good substitute for Ec 10.

• Ec 1010/1011 (intermediate econ) does not cover Ec 10 “at a

more advanced level”.

4. What You Need to Know About Ec 10

The intermediate econ sequence is to Ec 10 as courses

on Beijing and Shanghai are to a course on China

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4. What You Need to Know About Ec 10

What are Ec 10a and Ec 10b?

Ec 10a: Principles of Microeconomics: “[T]he study of

how individuals, households, firms, and governments
make choices, and how those choices affect prices, the
allocation of resources, and the well-being of other
agents.”

Ec 10b: Principles of Macroeconomics: “[T]he study of

the economy as a whole.”

Ec 10a and 10b form a unified sequence. Taking both

(starting with 10a) is recommended.
Source: Acemoglu, Laibson and List (2018).

4. What You Need to Know About Ec 10

Examples of what we will discuss in

Ec 10a and Ec 10b
Microeconomics (Ec 10a)
• Do consumers behave rationally?
• Should we break up the big tech companies?
• Is a universal basic income a good idea?
• Why has inequality risen since the 1970’s?
• How can we address climate change?
• How should you bid in an auction?

Macroeconomics (Ec 10b)

• Why are some countries richer than others?
• Why do recessions happen?
• Will the robots take all our jobs?
• What can we do to get out of a recession?
• Are budget deficits and debt a problem?
• How do trade and international capital flows affect economies?

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4. What You Need to Know About Ec 10

How is Ec 10 taught?

• Lecture: Two per week. Coming in person is

recommended but you can also watch on video
anytime. Much of the material in the course is
only covered in lecture so please “attend” the
lectures one way or another.

• Section: Once per week. Attendance is

required. Section will introduce material that is
integral to the course, help to reinforce and
extend previous material, and allow for
discussion and debate.

4. What You Need to Know About Ec 10

Anne Le Brun
• Head Section Leader

• Taught Ec 10 for five years

• In Littauer 109 and office

hours are Wednesday 2-4,
Thursday 4-5

• alebrun@fas.harvard.edu
(she/her/hers)

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4. What You Need to Know About Ec 10

Your Section Leader

• Section is every Thursday or
Friday.

• Plus office hours.

• They will be introducing

content that is critical to your
success in the course and
also helping to reinforce and
extend material taught in the
big lectures on MW.

4. What You Need to Know About Ec 10

Paul Kelso

• Ec 10 Course Coordinator

• Paul is your first stop for all

administrative questions

• He is in Littauer 107

• pkelso@fas.harvard.edu
(he/him/his)

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4. What You Need to Know About Ec 10

Assignments
• Problem sets: Due most weeks. Most answers will be posted in
advance of due date, but you shouldn’t look at these before trying on
your own.

• Short essays: Economics is not applied math. Economics gives you

a lens to study and understand the world. Two short essays will
develop your ability to narrate economic arguments.

• Quizzes: Short quizzes will be held in section every week, mostly

covering the previous two lectures (that week).

• One midterm and one final: Similar in format to the assignments

above.

Please read syllabus carefully for details.

4. What You Need to Know About Ec 10

The online textbook (with MyLab)

• The course uses Microeconomics by Acemoglu, Laibson, and List, which
is called MyLab with eText for Microeconomics (2nd Ed.)
• MyLab accesses problem sets that provide learning aids, immediate
feedback, and auto-grading. You need MyLab to submit some of the
material on your problem sets. By reducing manual grading, MyLab
enables us to increase the amount of section-leader office hours.

• To access MyLab, click on the “MyLab and Mastering” link on

Canvas.

• MyLab costs $55.99, which includes the online version of the textbook.
From within MyLab, you can pay $9.99 more to receive a printed loose-
leaf version of the text, but note that dozens of physical copies of the
book are on reserve in Lamont Library.
• We have obtained a steep discount on MyLab. David has arranged not to
be paid royalties from the sales of this book to students in our class.

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4. What You Need to Know About Ec 10

The Harvard College Honor Code

“Members of the Harvard College community commit
themselves to producing academic work of integrity – that
is, work that adheres to the scholarly and intellectual
standards of accurate attribution of sources, appropriate
collection and use of data, and transparent
acknowledgement of the contribution of others to their
ideas, discoveries, interpretations, and conclusions.
Cheating on exams or problem sets, plagiarizing or
misrepresenting the ideas or language of someone else as
one’s own, falsifying data, or any other instance of
academic dishonesty violates the standards of our
community, as well as the standards of the wider world of
learning and affairs.”
Source: https://honor.fas.harvard.edu/honor-code

4. What You Need to Know About Ec 10

Next class we will cover empirical methods.

Here is a teaser illustration

Researchers randomly assigned each Intro Econ

class at West Point to one of three treatment groups:

1. No laptops or tablets.
2. Tablets only (and they must lie flat on the desk).
3. Laptops and tablets permitted.

All classes otherwise effectively the same.

Source: Carter, Greenberg and Walker (2016).

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4. What You Need to Know About Ec 10

Moving from
the 50th to the
39th percentile

Source: Carter, Greenberg and Walker (2016).

4. What You Need to Know About Ec 10

Our electronic devices policy

• Electronic devices may not be used in class unless you opt into a
“laptop” seating section of the classroom (in which laptops and
iPads may be used for course-relevant purposes).

• Cell phones and smart watches are not allowed to be used in

class (except during polls).

• If you wish to sit in the laptop section, please send Paul Kelso an
email by 11:59 p.m. on September 13 (with subject line LAPTOP)
explaining why it is pedagogically valuable for you to use a
laptop in class.

• In our experience, for most students, laptops undermine

learning. Laptops are also a distraction when the people around
you are using them.

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4. What You Need to Know About Ec 10

We want your feedback!

1. Anonymous mid-semester survey

2. Immediately after class

3. Office hours

4. Email

5. Anonymous Google form

Today’s Outline
1. What is Economics? The study of the choices that people make and the
consequences for society.

2. Why Study Economics? Understanding the world, helping with personal

decisions, helping with employment-related decisions, and promoting
better public policy.

3. The Positive-Normative Distinction.

4. What You’ll Need to Know About Ec 10. Please read the syllabus!

Next lecture: We will discuss the three core economic principles:

optimization, equilibrium, and empiricism and also introduce the scientific
method.

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