Lecture 1 Notes: Basic Principles of Economics (Econ 1110)

Basics

  • Econ 1110: Lecture 1 – Introductory Microeconomics (Basic Principles of Economics), date: August 25, 2025

  • Instructor: Prof. Nick Sanders (njsanders@cornell.edu)

  • Why this class: The material is engaging; instructor may move quickly; ask questions to slow down

  • TAs: Becca Chan, Hongyuan Xia, Wanxi Zhou (3 PhD students); office hours/emails posted on Canvas class home page; additional undergraduate Course Assistants (CAs)

  • Tutoring: 10 am – 5 pm, 5 days a week starting after Labor Day

  • Course logistics: syllabus on Canvas; also on classes.cornell.edu for those not enrolled; minor admin today

  • Office hours and contact etiquette: professional emails, timely responses expected

What is Economics?

  • Economics is the science of decision making

  • It focuses on optimization under constraints and the tradeoffs people face

  • Important caveat given: economics is not a judge of morality or social defensibility of choices; it models costs and benefits, often using money as a reference value

  • The class builds a framework for understanding how individuals make choices, how those choices interact, and how markets and policies affect outcomes

What is Microeconomics?

  • Microeconomics studies how society manages limited resources when wants are unlimited

  • Examples given: sleep vs. work, education vs. food programs, etc.

  • Key point: economics analyzes tradeoffs and decisions at the level of individuals, firms, and markets

Core Principles of Economics (Chapter 1 framework)

  • The core principles are organized into major categories:

    • How do people make choices?

    • How do the choices of individuals interact?

    • How does all that play out in the economy as a whole?

    • Everything from here is an expansion of these ideas

#1: Choices are Necessary

  • Scarcity: Resources are limited; you cannot get everything you want

  • A resource is anything used to obtain something else; scarce means not enough to satisfy all desires

  • The central idea: economics is about choice, not money per se

  • Illustrative examples of scarcity:

    • Individual: hours in a day; total possible course load

    • Society: preserve ANWR for moose vs. drill for oil; spend taxes on education vs. health care; lower taxes vs. build roads

  • The cost of a choice is what you give up to get it (opportunity cost)

    • Rule: rank choices; the opportunity cost of your top choice equals the value of the next best alternative sacrificed

  • Not all sacrifices are equal; the difference between choices matters for decision making

#2: Opportunity Costs Matter

  • Definition: the true cost of a choice includes the value of the next best alternative forgone

  • Classic framing: “the cost of Cleaner is the ticket price plus the time/experience you sacrifice to watch the movie”

  • Example framing used in class:

    • Before Econ 1110: cost of Cleaner = $14.25 ticket

    • After Econ 1110: cost of Cleaner = $14.25 ticket + 2 hours of study time sacrificed

  • Opportunity costs can explain real-world phenomena (college enrollment, MBA applications, etc.)

  • Several real-world poll-like examples cited (e.g., college vs. work, education vs. other opportunities)

  • Key takeaway: opportunity costs can be comparable to or different from market prices; long-run decisions often hinge on relative costs and benefits

  • Additional nuance: as education and wages rise, opportunity costs of childbearing change; motherhood often shifted to later ages in advanced economies due to higher opportunity costs

#3: People Make Quantity Choices “On the Margin”

  • Decision-making often involves incremental steps rather than all-or-nothing choices

  • Examples:

    • Dinner: should I eat one more slice of pizza?

    • Study: how many hours should I study per night?

  • The marginal decision rule: evaluate the costs and benefits of the next unit of activity

  • Concepts:

    • Marginal Cost (MC): cost of one additional unit

    • Marginal Benefit (MB): benefit of one additional unit

  • Practical implication: much of economic reasoning is about whether MB > MC for the next unit, and continuing until MB = MC

  • Real-world: hiring one more worker, staying open one more hour; small changes accumulate

#4: People Respond to Incentives and Exploit Opportunities

  • Incentives are factors that motivate actions; individuals seek to improve their well-being by exploiting opportunities

  • Policy relevance: incentives shape behavior and outcomes; modeling incentives helps anticipate effects of policies

  • Examples:

    • Speeding tickets and driver safety

    • Government subsidies or costs for healthcare, vaccines

    • Red light cameras and driving behavior

    • NFL protective equipment and concussion risks

    • Electric scooter charging incentives and market dynamics (e.g., rewards for missed scooters)

  • Core idea: people respond to the costs and benefits created by incentives; behaviors adapt to maximize personal gains

#5: There Exist Gains from Trade

  • Trade allows everyone to be better off by specializing in what they do best and exchanging for other goods

  • Thought experiment: trading movie download codes; willingness to trade depends on perceived value

  • Assumption: voluntary exchange; no coercion

  • Specialization improves productivity and total output; households and economies rely on trade rather than attempting to produce everything themselves

  • Related notion: a broader gain from trade arises because total surplus can rise with specialization and exchange

#6: Markets Move Toward Equilibrium

  • Behavior adjusts until no one can be made better off by changing behavior given others’ behavior

  • Examples: Wegmans checkout lines, driving lane changes, etc.

  • Mechanisms: prices act as incentives and signals for value; markets coordinate actions when price adjusts to balance supply and demand

  • Price as a motivator and price as a signal of value

  • Implications: price changes can influence decisions like location, labor, or capacity (e.g., congestion taxes, adding lanes)

  • When all mutually beneficial trades occur, markets tend toward equilibrium

#7: Resources Should be Used Efficiently (with a footnote)

  • Efficiency: no one can be made better off without making someone else worse off (Pareto Efficiency)

  • Formal idea: an allocation is Pareto efficient if there is no alternative that makes someone better off without making someone worse off

  • Footnote important: efficiency is not the same as equity (fairness)

    • Example: two roommates receive a $100 rent refund; one keeps $99.99, the other gets $0.01

    • Efficiency does not guarantee equity; policy discussions balance efficiency with equity goals

  • Surplus focus: policies aim to maximize total surplus (the sum of gains to all participants) while acknowledging unequal distribution

  • Real-world caveat: gains are often unequally distributed in practice

#8: Markets Usually Lead to Efficiency (with a footnote)

  • Trade enables gains from specialization; markets allow trades until no further mutually beneficial trades exist

  • When all opportunities to make at least one party better off (without hurting others) are exhausted, efficiency is achieved

  • The “invisible hand” idea: individuals pursuing self-interest can collectively reach efficient outcomes

  • Important caveat: model assumptions vs. real world differences; naive theory can lead to problematic policy implications if not interpreted carefully

  • Markets can push us to undesirable outcomes in some cases, requiring careful scrutiny and open-eyed analysis

#9: When Markets Don’t Achieve Efficiency, Government Can Help

  • Markets may fail due to externalities, market power, public goods, or ill-suited market structures

  • Classic examples: pollution externalities, congestion, food safety, public defense, and scientific research

  • Key questions: Why do markets fail? What is the role of government in correcting these failures?

  • The syllabus notes that economists study these failures and policy responses, but day one focuses on understanding the baseline models

To Review (summary of the big picture)

  • People weigh costs against benefits to make decisions that maximize well-being

  • These decisions largely occur in markets, where prices coordinate behavior and resource use

  • Markets tend toward efficiency, but not always; government can intervene to correct failures or to achieve equity goals

  • The course emphasizes building intuition about tradeoffs, incentives, and collective outcomes through the nine core principles

Core concepts and their formal expressions (quick reference)

  • Scarcity and choice: resources are limited; not all desires can be satisfied; opportunity costs quantify the next-best alternative forgone

  • Opportunity cost: OC = v( ext{best alternative forgone})

  • Marginal analysis: continue an activity if marginal benefit exceeds marginal cost; stop when MB = MC

  • Pareto efficiency (allocation x is Pareto efficient if there is no x' such that every agent is at least as well off and some is strictly better off):
    \nexists x' : ui(x') \ge ui(x) \; \forall i, \text{ and } \exists j: uj(x') > uj(x)\n

  • Total surplus: TS = CS + PS (consumer surplus + producer surplus); efficiency implies opportunities to increase surplus are exhausted

  • Equilibrium in markets: Qs(p) = Qd(p) and price adjusts to clear the market

  • Gains from trade and specialization: trade can increase total surplus by allowing individuals to specialize in what they do best

  • Externalities, public goods, and market power as sources of market failure requiring policy intervention

Course structure and assessment (high-level overview)

  • Grading (two alternative methods):

    • Method 1: Participation 5%, Homework 10%, Prelim 1 25%, Prelim 2 25%, Final 35%

    • Method 2: Participation 5%, Homework 10%, Prelim 1 (Lower Score) 25%, Prelim 2 (Higher Score) 25%, Final 55%

  • Attendance: not required, but rewarded; class discussions cover material not always in the textbook

  • Textbook: Microeconomics (9th edition) by Krugman & Wells; eBook via Achieve; hard copies available online

  • Slides: posted usually the night before class; audio recordings after class

Achieve and CAMP (course logistics for assignments)

  • Achieve program handles homework for the course; counts toward the grade

  • CAMP: assistance program; if opting out due to cost, contact the instructor for alternatives

  • Achieve features:

    • Multiple attempts on questions; only the highest score counts

    • Practice-focused material; beware of overconfidence from repeated attempts

  • Homework deadlines: all due by 11:59 pm Eastern; can be reopened during last week of classes/reading days for missed work (but not redoing what was already completed)

  • First few assignments are practice; Chapters 1 and 2 homework are relevant material

  • Final graded material begins with Chapter 3 once the add period ends

  • Achieve also includes End-of-Chapter (EOC) and Learning Curve materials for extra practice

Ed Discussion and Active Learning Initiative (ALI)

  • Ed Discussion: online forum for questions; anonymous posting allowed but author identity is visible to the instructor

  • At least one TA checks Ed Discussion daily; students can answer questions to help peers

  • ALI: two additional assessments

    • A mandatory pre-semester math assessment (details forthcoming)

    • An end-of-semester optional assessment; completing both yields an extra 0.5% added to final grade

Poll Everywhere and participation policy

  • Poll Everywhere is used to engage the class; participation contributes to the grade

  • Access: pollev.com/sanderspolls; can use laptop, tablet, or smartphone (no app required, but available)

  • Scoring (across 24 counted lectures; the first week is free):

    • If you respond at all on a counted day, that day counts toward participation

    • Participation points by number of lectures with at least one response:

    • ≥ 19 lectures: 5 points

    • 17–19 lectures: 4 points

    • 12–16 lectures: 2 points

    • < 12 lectures: 0 points

  • Emphasis: not about being right; about being engaged, testing knowledge, meeting peers, and staying alert

Logistics for students with accommodations

  • Students with disabilities: important to request accommodations via the SDS Student Portal no later than the add/drop deadline

  • Processing times: SDS acceptance letters can take up to 48 hours (existing students) or up to three weeks (new accommodations) once approved

  • If accommodations are approved later in the semester, request the accommodation letter as soon as possible

  • Exam accommodations: course participates in the Alternative Testing Program (ATP); exams centrally managed by SDS; information at sds.cornell.edu/atp

  • For conflicts: submit an exam request form no later than 10 business days before the exam date; standard conflict exam times are 8 am or 5 pm

  • SDS portal: sds.cornell.edu; ATP information

Additional notes from the instructor

  • The course emphasizes that you can email with questions and should maintain professional communication standards

  • Laptops and devices can be used, but should not distract others (no noisy chat, videos, or social media during class)

  • The teaching team (TAs and CAs) will roam during class to help with examples and questions

  • Expect occasional changes to the schedule, chapters, and videos; updates will be posted

  • The end of this first lecture outlines what’s next: basics of trade in the coming Wednesday session

Real-world relevance and examples sprinkled through the course

  • Opportunity costs in daily life and career decisions

  • Marginal thinking in settings like dietary choices, study planning, and work hours

  • Incentives played out in everyday contexts (traffic policies, vaccination programs, and labor market dynamics)

  • Gains from trade in household production and broader economies; specialization and exchange

  • The balance between efficiency and equity in policy decisions (Pareto vs. fairness concerns)

  • Government interventions to address externalities, public goods, and market power when markets fail

Quick references to key ideas from the transcript

  • Scarcity and choice are the foundation of economic reasoning: resource = anything used to obtain something else; scarce = not enough for all wants

  • Opportunity cost is the value of the best alternative forgone when a choice is made

  • Marginal analysis drives many daily and business decisions

  • Incentives shape behavior; policy design relies on predicting incentive responses

  • Trade and specialization can increase overall welfare; voluntary exchange is central to gains from trade

  • Markets tend toward equilibrium but can fail; government can improve outcomes in the presence of externalities, public goods, and market power

  • Efficiency (Pareto) is about maximizing total surplus; equity concerns may require redistribution or policy adjustments

  • Education and study strategies: active engagement, deliberate practice, and balancing time and effort across topics

  • Tools for learning: a mix of lectures, slides, recordings, and practice problems; don’t rely solely on memorization