Chapter 1 1 Chapter 1 The Market This chapter was written so I would have something to talk about on the first day of class. I wanted to give students an idea of what economics was all about, and what my lectures would be like and yet not have anything that was really first day, and a good number of them won't nec ily be at the lecture. way t I chose to discuss a housing market since it gives a way to describe a number gives a of economic ideas in very simple language and gives a good guide to what lies ahead. In this chap sing results-analytic insights that would thinking"about a problem. The two most surprising results that ndominium example and the tax example in Secti sizing in class just why these results are true, anc nodeling. It also makes tions. Suppose that every con- dominium conve and creating two apart- ments. Then wha condor Suppose that the condominiums a consider renting an apartment. In ea ng apartments would rise when cond The point of a si red here is to focus our thoughts on wha come to a once-and-for-all conclusion about t is offered by these examples is that you ha the demand side of the apartment market when t of this particular policy. The only concept that le with in this chapter is the idea of Pareto efficiency idea a little more than is in the book and rephrase it a few times. But then I tell them not to worry about it too much, since we'll look at it in great detail later in the course The workbook problems here are pretty straightforwa. The biggest problem is getting the students to draw the true(discontinuous demand curve, as in Figure 1.1, rather than just to sketch in a downward-slopir curve as in Figure 1.2. This is a good time to emphasize to the students that when they are given n numbers describing a curve, they have to use the numbers-they can't just sketch in any old shape.Chapter 1 1 Chapter 1 The Market This chapter was written so I would have something to talk about on the first day of class. I wanted to give students an idea of what economics was all about, and what my lectures would be like, and yet not have anything that was really critical for the course. (At Michigan, students are still shopping around on the first day, and a good number of them won’t necessarily be at the lecture.) I chose to discuss a housing market since it gives a way to describe a number of economic ideas in very simple language and gives a good guide to what lies ahead. In this chapter I was deliberately looking for surprising results—analytic insights that wouldn’t arise from “just thinking” about a problem. The two most surprising results that I presented are the condominium example and the tax example in Section 1.6. It is worth emphasizing in class just why these results are true, and how they illustrate the power of economic modeling. It also makes sense to describe their limitations. Suppose that every con￾dominium conversion involved knocking out the walls and creating two apart￾ments. Then what would happen to the price of apartments? Suppose that the condominiums attracted suburbanites who wouldn’t otherwise consider renting an apartment. In each of these cases, the price of remaining apartments would rise when condominium conversion took place. The point of a simple economic model of the sort considered here is to focus our thoughts on what the relevant effects are, not to come to a once-and-for-all conclusion about the urban housing market. The real insight that is offered by these examples is that you have to consider both the supply and the demand side of the apartment market when you analyze the impact of this particular policy. The only concept that the students seem to have trouble with in this chapter is the idea of Pareto efficiency. I usually talk about the idea a little more than is in the book and rephrase it a few times. But then I tell them not to worry about it too much, since we’ll look at it in great detail later in the course. The workbook problems here are pretty straightforward. The biggest problem is getting the students to draw the true (discontinuous) demand curve, as in Figure 1.1, rather than just to sketch in a downward-sloping curve as in Figure 1.2. This is a good time to emphasize to the students that when they are given numbers describing a curve, they have to use the numbers—they can’t just sketch in any old shape